Alembic Pharmaceuticals Limited (APLLTD) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the discussion on impact of COVID-19. We have with us today on the call Mr. Pranav Amin, Managing Director; Mr. Shaunak Amin, Managing Director; Mr. R.K. Baheti, Director, Finance and CFO; Mr. Mitanshu Shah, Head Finance; Mr. Ajay Kumar Desai, Senior VP, Finance. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pranav Amin. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and thank you all for joining our conference call. The reason for this is that we had multiple requests for a call about this topic and Alembic and the pharmaceutical outlook. And instead of individual calls, we thought we will just do one, where we address all of you together. Before I get to the COVID pandemic, let me address the FDA issue that we recently had at F1, our main formulation plant for the U.S. and the European markets. We had 2 auditors who spent a week, about 5 days with us inspecting the plant. There was a general GMP audit. We were issued 4 Form 483 observations. None of these are repeat observations nor are they related to data integrity. Broadly, the observations were quite procedural and related to strengthening of our SOPs. I'm quite confident that they're quite benign, and we should be able to respond to them adequately. Coming to the COVID pandemic. The pharmaceutical industry is relatively less affected by this compared to some of the other industries we have seen. Up until a few weeks back, the only pertinent concern for Indian pharmaceutical industry was the inbound material coming in from China, which is the API and the intermediates and the disruption and the supply chain. However, things have been progressing quite fast and exponentially. And let me take you through what our thoughts are on that, in particular, to Alembic and just to give you an idea. I'll talk about the international business first, talk about supplies from China. So as I've said earlier, that we are relatively [indiscernible] we generally carry higher inventory levels. Number two, we have a lot of domestic intermediate suppliers. We have our own API facility for our international formulations. And we are very much restricting to the Chinese API and international markets. So we are not really concerned. We haven't got affected by the shortage in supply from China so far. So we are quite comfortably placed. Having said that, what we are seeing is that supplies from China have improved and they're getting back to normal sequence. So clearly, there's not a concern either for us anymore. We have enough inventory, and we're seeing supplies resuming from China as well. Coming to the international markets. So far, as of today, we have not seen any disruptions in our international markets. We have enough inventory to cater to these markets. Our strategy, as we have repeatedly been saying, is that we want to be nimble with our suppliers and capture market opportunities when they arise -- when disruptions arise. The U.S. business is continuing with our routine sales and dispatches. We have enough inventory in the U.S. The team is working from their home, but no impact on sales and dispatches. Europe. Our sales to Europe are through our partners and most of our shipments are FOB. So far, we seem to be okay with sales and dispatches in this quarter. API. We are seeing increasing opportunities in the API space and trying to monetize as many as possible. The government recently came out with a notification where they banned the export of some antibiotics and retrovirals, some of our products were in that. However, they have reversed this, so they have eased these norms, where you can apply to the government, so they are giving permission so that should help us. Another initiative that the government has done, which will help us in the near future, is they have hastened the approval process for incremental capacity at API plants. So that should help us because we see a lot of opportunities in API, and we need to expand our capacities, and we were waiting for some of these permissions. So that should help us in the near-term, 3 to 6 months. For our manufacturing -- as far as manufacturing is concerned, we have had no disruption in manufacturing and also all plants are running on full capacity as on date. The only potential area where, in the future, we may see some disruption is on the outbound logistics. This, as you know, in the last week or so, we've seen a lot of flights and lockdowns in many countries. So far, we've not seen anything. But outbound logistics may get a little constrained, so shipments later go out. I'm not overly worried about it because it may delay shipments by a week or 2, but nothing that I'm concerned about. I believe that the pharmaceutical industry is in a good space so far. I will just hand it over to Shaunak to talk about the domestic business and the impact that we are seeing on the lack of it.

Yes. Good afternoon, everyone. Let me start first by talking about the supply chain. I think, as you know, India is quite heavily dependent on Chinese supplies. I think we started taking a call second week of February looking at situation that was unfolding in China to start building up inventory in our key APIs. And from that point onwards, we've been consistently buying APIs. And I think from a supply chain point of view, I think we are in a very comfortable situation for the next quarter, 2 quarters. So that's on the API and supply chain side. Secondly, I think coming to our plants, I think our plants have fully been active. And again, about 2 weeks ago, we took a call to step up production out of our second facility and start operating additional shifts just to make sure we have more product available in the market. So that's the second step which we've taken to ensure there's good movement of product and there's good availability of products at all our CFA locations. So that's the second step we've taken. Third step when it comes to our operations out of our Bombay office. I think as early as starting on Monday, we have started operating remotely for pretty much most of the office. And I think we are in a very comfortable situation at this point in terms of operating remotely from the head office point of view. Secondly, I think when it comes to the medical reps point of view, at the moment the whole industry has decided that the medical reps should not be asked to work when everyone is working from home. I think we have some exposure to digital marketing and as well as we're using this time to work on budgets for the next financial year. Along with that, there is an amount of time being -- to make sure that there's product availability, customer interfaces remotely are happening, so that's on the domestic side.

And training for them.

Yes, and training for the MR also is going on. So that is where we are. And I think we're quite pretty well prepared from what to come and what we foresee -- what we can foresee at this point in time. In terms of major disruption that we are expecting to our business at this point, I think we fall under essential commodities, so we have to supply. And I think we've taken a call to make sure we're there updating the doctors on the latest information that we see in and around this or with anything associated. So that's an ongoing thing. Another small thing is there have been some studies going around in -- related to a combo of hydroxychloroquine with azithromycin done in France on a 20-patient randomized study. We have seen that we are in a wait-and-watch situation. We are constantly scouring all medical updates in regards to any of our key products that can play active role in treatment of the coronavirus. So we are on that job, and we are constantly looking out to see if there's anything that can be used. And we're waiting and watching to see if there's more data that comes out on azithromycin, as we have a large interest and large stake in that product. So that is where we are. In regards to regulatory, I think we have made representations. Industry has rather made representations to NPPA in regards to price revisions. I think you are well aware, that has been fairly well documented in the newspapers. What else are we looking at? I think that's good. So I think I can open it for questions. So thank you.

[Operator Instructions] The first question is from the line of Damayanti Kerai from HSBC.

Thank you very much for conducting this call and inviting us to speak on this current situation. So my first question is in view of FDA suspending all foreign inspections in April, are we seeing any impact on the ANDA review process? Anything so far has come? Or it's going on as usual?

It's going on as usual. We're not seeing any impact. We're still getting communication from the FDA. I think they've put audits in India on hold, but the work is going on from home, so ANDA reviews, queries are going on as expected.

Okay. So barring the products which may need prior approval inspection, all other ANDA approval process would go smoothly, right?

Yes, it seems so far. We haven't seen any change in that process.

The next question is from the line of Dheeresh Pathak from Goldman Sachs.

Sorry, this is Dheeresh Pathak, the name is pronounced wrongly. In terms of the new facilities that we have built, FDA is not coming for inspection now, so can you just refresh my memory in terms of, I think, Aleor and there was one more which was already inspected.

Yes. So yes, I'll take you through that. So there's -- we had -- F1 is our main formulation plant that we just got inspected again a few weeks back. F2 is the oncology block. The oral oncology has already got inspected twice and approved. F3 is the injectable plant, and we have just filed the first of our products from there. So we weren't expecting audit anyway through the end of the year. And F4 is Jarod, where we will be filing the first of the products on their zones panels so we weren't expecting audit until the end of the year.

Okay. And on azithromycin, I was just -- it is one of those penicillin-based products, right? So our key starting ingredient would be coming from China for that, right?

So no, as you know, azithromycin is -- not to benefit from azithromycin. Some of the starting material is from China, some comes from Europe and the U.S. as well. But this is a product that we've had for a while, so we carry enough inventory for that.

But in terms of new supply which are linked to azithromycin from China, are you getting those? Or you're not getting those?

Yes, we're getting everything.

The next question is from the line of Ranvir Singh from IDBI Securities.

Wanted to -- this existing facility where you got your subsequent 483. So just wanted to understand how much ANDA relates to that facility, Panelav facility?

Sorry, how much is what? I couldn't hear.

Can you pick up your phone? I'm guessing you are calling from the speakerphone and the voice is not very audible.

Yes, is it audible?

Yes, it's better.

I was asking the facility which has recently got 483, the Panelav facility. How much ANDA filing relates to that facility that you have referenced?

I think, actually, if you see all our commercial supplies are from that facility. And in terms of filing...

140 odd.

Over 100 filings, 140 filings or so.

So also out of pending 71 pre-NDA, I believe that Panelav is a main facility, key facility, where bulk of formulation, sir.

Yes, yes, yes. For APIs, for formulations, we only have 1 facility which supplies commercial to the U.S., and that is this F1.

Right. And in your commentary, you said in domestic market, because for now MRs are not working monthly, so -- and I believe that as directives given by government, their salaries and other perks should continue, I believe. So how much per your assessment, is going to impact our P&L? How much in terms of revenue expense you are going to see changes?

So as long as sales are getting generated, it won't impact our P&L. And as Shaunak said, that while MRs are -- have restricted costs, I think they are still in touch with doctors digitally, telephonically, by mails. So we are still promoting our products. And I think as far as your -- the stock is -- upliftment of stock is concerned, we have not seen any major revision. So we are on target. So I don't think we would have an impact on P&L in the short term.

Yes. Just to give you an update, I think since MRs have been not in the fleet now for 4 days, I think despite that, our billing trend as per what we should be billing continues as we see no change and we see movement of stock also movement of product into the market as normal. So we don't see that as a major issue at this point.

The next question is from the line of [ Ashish Thakkar ] from Motilal Oswal.

So on Europe, since Italy, Spain and Germany, these 3 nations are suffering from COVID. Your comments or if you could help understand how we should now look at Europe?

So listen, Europe, unlike other companies, we don't have a direct front end in Europe, right? So the only market, apart from India, where we have a direct front end is the U.S., where we have our own team. So in Europe, we supply to our partners, who in turn have their supply chains and go through. So as far as we are concerned, we're seeing suppliers as normal. We're not seeing any disruptions so far.

Okay. But there is nothing on the demand side of things or...

No, we haven't received any change in forecasts or suppliers' arrangements. We are continuing with our plans, as usual.

Okay. Okay. Can you see this oil prices could have an impact on such markets?

I think oil, in terms of the pharmaceutical space, I don't think there'll be impact to oil. There's -- I mean, at a macro level, yes, you may see transport coming down and stuff like that, but there's so many other variables today. So I think it's very hard to just give an impact of oil on pharmaceutical industry.

Okay. And to the extent the solvents and adjuvants are related, could there be some kind of savings then?

Technically, yes. But in this environment, again, when you're talking about so much disruption and getting availability and being that, so I don't see that as yet. Maybe 3 to 6 months down the line, you may see a benefit in pricing.

The next question is from the line of Nimish Mehta from Research Delta Advisors.

I'm sorry, I actually missed some of the initial comments, but what I understand is that despite all the disruptions that might have happened from China and the like, as of now, our sales and our targets are kind of intact. Is that the right understanding?

Yes, absolutely. So what I said in the opening statement is up until last week or 10 days back, the only concern was that China and the supplies coming from China. And repeatedly, we've insulated ourselves by carrying high inventories, and we source from domestic suppliers. So that's one. Number two, what's happening is now supplies from China have already resumed. So that has eased that, so we are comfortable on that. Only issue where we may see, and we haven't seen it so far, is on the outbound logistics, which may delay our supplies by about a week, 2 weeks, depending on how the flights and the ports are planned.

I see. So, what I understand from our previous calls and that is that you will have inventory until the end of March and now that the supplies have resumed from China, we are likely to see a similar position as far as the logistics. Is that a right statement?

No, actually, that's not a right statement. We've never said that we have inventories till March. We always have quite a few inventories. So we're never concerned about this China situation right from the beginning, the last quarter itself.

Yes. From India point of view, I think we're covered up to July, at least, at this moment. And like you said, China supplies has started. So we will keep covering, and we will keep carrying extra inventory.

Okay. And last -- and do we see any impact on API as well? Because API supply of intermediates might come from China and that might just to be...

Actually, I see more opportunities on the API rather than constraints. The opportunities are in 2 areas, one where people want API from us. However, we were restricted by capacity. So what the positive and as stated in my opening statement is the government is fast-tracking permissions for increase in API capacity and building plants. So that should benefit us over the next 6 months onwards.

Yes, as we have our substantial capacity that will go onstream post this change in government decision.

I see. And you don't see intermediate supplier as an issue for API then?

No.

The next question is from the line of Saion Mukherjee from Nomura.

Just one question.

Sir, can we request you should be a bit closer or louder to the speaker?

Is it clear now?

Yes.

Just one question on the -- we heard like prices were moving off of raw materials in the initial phase. I don't know, especially for anti-infectives, which directly or indirectly were linked to China. So when you look at your raw material costing now, how is -- do you have -- has it impacted you? And how are the prices now?

So there's 2 parts of it, right? So you're right. Some anti-infectives, the pricing has gone up. But then again, in other cases, the selling price in the international markets of these products has also gone up. So it kind of balances itself. In terms of internal, I think still there's enough room. We have our old contracts, so we should be okay.

Sai, just to add from an India point of view, like I said in my opening statement that we started covering in February. So a lot of the APIs we have covered have been at those original rates. And obviously, there was, subsequent to that, there was a bit of a panic situation in the market and traders did start quoting both Chinese and domestic in terms of higher API prices, though we have not been exposed to that. And like we said, we see China supplying -- supplies resuming, which in turn already should bring the prices back to more reasonable levels.

Okay. Okay. So net-net, you don't see any impact on the P&L because of these movements?

No, there would be but difficult to assess at this moment. Also, as Shaunak said earlier, the industry associations have already made representations to the government, to NPPA and to Department of Pharmaceuticals for revision and particularly NLEM prices are the same because of the inflation index taken up to December is just less than 2%. The price rise, which should be effective from first of April 2020, will be 1.88%. And there, I think -- and quite a few antibiotics fall into that NLEM products. So there is already some discussions going on. NPPA's also working on it. So let's expect some relief from NPPA also.

Sir, what portion of the domestic formulation sales would come under this category where you're asking for a relief because of higher prices?

So I mean, I think it would not be fair on my part to discuss molecule-wise impact -- and molecule-wise revenue and how much of impact on which molecule, because these are around competitive, sensitive information. We have submitted all of the data to the government.

Okay. But, sir, I was just asking like as a percentage of the domestic sales.

I have already -- you know the NLEM prices, you know which are the products which are covered in NLEM and you know which are having the impact here.

Yes. Okay. So I think I'll answer Mr. Mukherjee's question in a different way. I think immediately for Q4 this financial year and Q1 next financial year, we see no impact. Apart from that, if there is a consistent run-up in API prices from China at that point, I think that's when our discussions with NPPA would have some material benefit and both NPPA and Department of Health have shown willingness to revise prices based on elevated procurement rates from China. So I think as and when that happens, I think there would be definite scope for us to go and make a relevant representation when we feel a lot of pressure because of this. So like I said, I think for the next 2 quarters, I think we're in a fairly comfortable situation at this point.

The next question is from the line of Sameer Baisiwala from Morgan Stanley.

A quick one on logistics and transportation. How much of your inbound material is coming from sea route versus air? And likewise for the outbound?

About 80% is coming by sea for the inbound and 20% by air. And outbound, I'm assuming the air will be higher at this stage.

Okay. Like 30-70 for outbound?

So outbound will be...

Outbound 90-10. 90% air and...

90% air and 10% outbound sea.

All right. Okay. That's great. And second question is, sir, how much does it take to further backward integrate your APIs into intermediates so as to reduce dependence from countries like China? And that's a general question, not subject strictly to you.

So it's a good question. Actually, this is something that we have been increasingly working on for over the last few years. It's not because of COVID, because of the disruptions we've seen from China and not just now but in the past as well. So it takes a while. It's not impossible. I think a lot of them, we do have either an internal source or a domestic source that we do. Our supply chain team, and I have some of members here with me. They constantly keep doing that. So it's possible. It's not tough. Some is still -- some products where China has got a really huge advantage, it may be little -- might not be as price -- it might not be as price-competitive, but it's an ongoing process. But it's possible to do. It's not as bad.

I mean if you think about the industry, do you think this could be a major trend over the next 1 to 3 years as more and more company tries to internalize intermediates?

Yes, I think you're right. I mean I think that trend, it's already started over the last few years. And broadly, because you have to see -- specifically, if you see the U.S. market, what is happening is your disruption in supplies is a huge penalty if you can't supply. And people have realized that, they made that mistake. So they've all been internalizing either APIs -- intermediate supplies or getting local partners who are good intermediate suppliers, and we're following the same suit as well.

Great. And see interview after interview, many companies have come and said that the dependence on China directly or indirectly for intermediates and API is very high, about 60%, 70% is the product overlap. However, you are saying that yours is much less. So which is the right version?

So -- okay, now intermediates, it depends which stage of intermediate or how basic the intermediate is. And what -- you see that -- yes, I think 60%, 70% would be a right amount. I think people would have alternate sources in India, but not for everything. So it's an ongoing process. I think we are okay because we do have interim -- see, again, you have to see which are your priority products where as well, as I've said in my calls, there's about 20% of your products which is the bulk of your profits, right? The top 20% make up 80% of your revenue and profits. Those are the ones that you have to be backward integrated or have alternate sources. And that's what we've done. The rest of the industry, yes, it's fair enough. I think 60%, 70% is about right.

Okay, that's great. And one final one. How are you thinking about the currency, which is a ForEx rupee-dollar move from INR 70 to INR 74, what have you?

No. So that's definitely benefiting us as we are a net exporter. So that's been in our favor, and we're actually happy about that so far.

Okay. And there is no adjustment in your selling price to your customers in U.S., et cetera?

No, because it's all -- we sell in dollar, right? So we're okay.

The next question is from the line of Vineet Gala from Monarch Networth Capital.

So what are your thoughts on this recent CHQ plus azithromycin for tackling COVID in terms of our U.S. and domestic business? If you could throw some more light on that. And also, if you could tell us what is the azithromycin export to the U.S.? Do we export that? And if yes, what percentage would that be?

Okay. So Vineet, I'll take -- I'll answer the first question in regards to the hydroxychloroquine plus as these studies have come out of France. I think up to now whatever research, I think it's a leading biologist out of Southern France, which has done this exercise. I think the problem that -- not problem, I think what we're digging for is more data. As of now, like you have seen this per the report, is a 20-patient nonrandomized study. So that gives some indication, and we are tracking aggressively to see if this indication is -- if sorry, if this follow-up to the study is ongoing. And we expect some more follow-up data to be emerging out on this. We have also started discussing with all leading experts within the country as per their opinion and they're trying to get their opinion on this combo on how azithromycin will play a pivotal part of treatment on this. So I think it's an ongoing and unfolding situation. It's got traction, I think, maybe 2 days, 3 days ago. And we're just waiting and watching to see if there's any further clinical data that comes out of this at this point.

I think in regards to export, Ajay, Pranav?

As the exports, we haven't -- I mean, we do have a sort of orders right now. We've seen...

What is our supply to the U.S.?

Supply to the U.S. is not much. We're not supplying much to the U.S. ROW markets and Europe is where we supply more.

Okay. Sir, in terms of our API capacity, you mentioned like we have -- there's possibility of increase in our API capacity due to recent policy change. So is that Karkhadi?

Both Karkhadi and API 1, which is at Panelav, I think this ruling will help both our capacities.

Okay. Sir, and when will this -- these 2 plants be available for the U.S. market?

I think they're already available. Both are audited for -- by the U.S. FDA. It's a matter of how we put the balancing equipment up, what how -- what kind of permissions we get. I think 6 months or so is what we'll take a look at and we'll get a better perspective, better idea on that.

Okay, sir. And sir, last question from my side. Sir what percentage of APIs do we export specifically to the U.S. market?

I don't have that figure. It's tough to say because directly or indirectly, they may end up in the U.S. because we may supply to Indian suppliers who are then using in the U.S., so it's tough to give that answer.

The next question is from the line of Prakash Agarwal from Axis Capital.

A question on the domestic business. Would it be fair to assume that the acute segment would have picked up as well as a lot of pre-buying would have happened given the scale has been there for 1 month now for domestic business?

Sorry, could you repeat the question?

So just trying to understand, like with the extended winters and this coronavirus being -- scale being there for the last 1 month now, would it be fair to assume a lot of pre-buying by the patients in India just to stock the -- and also pick up especially in the acute segment of your business?

So we see in terms of all the scale up, I think about exactly 2 weeks from ago -- now, I think in the middle of the Holi festival, I think there was not a single talk of COVID within the country. I think we've seen a rapid scale-up in the last 10 days in terms of the governments as well as the response to people in the country. I mean I can't give you an answer whether there's been a lot of pre-buying on this. It's hard for me to answer it at this point because, literally, we're just seeing things happening and unfolding in a very quick fashion. Have we seen a better response because of this and because of season? I think, as of now, our sales trends are matching, this month are matching what they were for the last 3 or 4 months. So if that gives you an answer, that target's shot up or has shot down, and I don't think so, but it's exactly in line with how we've been seeing our sales progress over the last -- if I give you, actually, as per 20th, if I compare it with 20th of Jan, Feb, December last year and November last year, I think it's more or less exactly in that range. So if that gives you an answer.

Understood. Fair enough. And on the other side, when we look at the Maharashtra lockdown and all, would it be difficult for enough agents, distributors to send shipments and products to the retailers? And the retailers all swapped around, the transportation would be a big issue because -- so what is your view there?

So as of now, I think because we are essential drugs -- essential commodities, sorry, I think it is imperative throughout the -- I mean, the whole supply chain has to stay open starting from plant all the way to the retailer -- retail level, which include CFA as well as stockists. And as of now, we have no -- we don't see any impact of that or transportation-related issues. I mean we have to supply. And I think it's against -- I think we don't see anything -- any reason why that would not happen.

Okay. And lastly, on the sartan end, just to understand, in terms of our preparedness, we talked in last call that it's a more medium-term opportunity versus a near-term opportunity, given the disruption in supply side both for raw materials as well our shipment. Would we see any risk to this statement?

No. No change in that statement. You're talking about sartans, right?

Yes.

There are no change. I think we're saying business as usual, no change from what I said in the last call.

Could it actually see a positive impact given more disruption across sales or...

Best see, I think, as I said in the opening -- my opening statement, our strategy is based on being an exclusive supply chain and catching the disruptions. So it could be. And we want to get -- we always gear up and try moving fast on that. So there could be disruptions on many products, not just sartans. So let's see what happens. We'll know in the next few weeks.

The next question is from the line of Kunal Mehta from Vallum Capital.

I just wanted to clarify the general statement, which you made that with respect to the products contributing 80% of your profits, you said your backward integration it is for the intermediates. Is that correct?

The integration on intermediates, how much?

So it's very tough to say, but it's an ongoing process, the backward integration of intermediates. We continue doing that depending on which products where, I don't have that figure handy in terms of percentage.

But it's true [indiscernible] the key products which is considered the cream of profits for us, [indiscernible] would that be a fair assessment, sir?

Do you think that where we have bulk on the profit, how much is backwardly integrated? I would say that because these are some old products, on the API side, we -- almost everything is backwardly integrated.

I was asking from the U.S. perspective.

Yes, yes, from U.S. perspective as well.

The next question is from the line of Surya Patra from PhillipCapital.

I just wanted to ask -- have a sense that you mentioned that there is now then policy changes about the capacity addition in the API side. So they have added -- since all the new capacity so far as the environmental clearance is concerned we have put under the categories few things. So what practical benefit that you should be getting, whether it is just a relaxation on each front? Or is there some benefit also that the airport side provides?

So the benefit is, as you know, the industry -- the international generic industry, it's a very dynamic industry and the volumes are very high. And especially in the wake of disruptions, you need that capacity that can be scaled up or scaled down very fast. So we always wanted to increase the API capacity to get ready for this. What the new ruling does is it removes a lot of the bureaucracy and makes it much faster to apply and increase plant capacity.

Okay. And any other -- on the financial point, any benefit or any relaxation or anything of that sort, sir? Is there or -- [indiscernible] always the advantage was that kind of the advantage, fiscal advantage what Chinese are getting and the scale at which we are operating, that is making the kind of a difference.

Surya, I think there are 2 different announcements. What Pranav is referring to is initial setting up or expanding on our API facilities. So the advantage to industry would be the faster approach, the process of getting environment clearance, the local pollution control board clearances were very long. That hopefully should be faster. We need to see that happening on the ground.

[indiscernible] financial benefits.

Yes. The -- they are also announced -- they have also announced some fiscal benefits for setting up new API facilities. I think the details are yet to be out. We -- or if they are out, at least we have not studied it. And see, we are talking of setting up a pharma-dedicated park, somewhere in Telangana. And I think we are inviting all API facilities -- manufacturing companies to set up their facilities there, and it will carry a lot of value addition. So all those details are being worked up and are being firmed. These are medium- to long-term measures, I don't think that would have an impact immediately.

Okay. And next question on the logistic parts. There is a -- anything that you are anticipating if -- as of now, we have not seen -- nobody has particularly in -- from the industry side witnessed any logistic issue, whether it is for the international trade or the domestic trade. So given the kind of scenario, are you seeing anything that can evolve since there is only 1 scenario?

So as I said, the only place that I may -- that we may some is on the outbound logistics. As you know, some flights are getting rescheduled and some flights have got canceled and some people aren't flying to the U.S. So there may be some reshuffling of dispatches. But apart from that, I don't see anything else in terms of the logistics.

And largely, the 80% outbound, sir, for logistics is air, what you mentioned, it is because the formulation only even -- or even the APIs or also logistics?

No, no.

No.

In context of formulation.

Formulation, mainly formulation.

Okay. And just last one question, sir. On the digital marketing trends for the maintain, how -- can you say something more on the -- how efficiently and how effectively that is happening? And on the possible...

I think the routine stuff, I don't think I need to give a lot of details because MRs are not encouraged to go to the field and meet doctors in their chambers. Doctors are also avoiding it. I mean I think we are doing our bit of promotional activities on our product detailing, as we call it, through mails and through mobiles and so on. So it's the standard stuff.

The next question is from the line of Rahul Sharma from Karvy Stock Broking.

So I just wanted to get clarity on the -- where the plant which was inspected and you got four observations. So any -- what time are we looking at for resolving this? And will there be a time lag in approval process in the launches which are there?

No. I don't expect delay in any of the launches there. These are general observations which we will reply to them in the next few weeks, and we should get an EIR hopefully soon. They are not -- no launches are going to be held up because it is not a warning letter or an important. Just quite benign, as I mentioned, they're quite procedural in nature. So I don't expect it to escalate.

Okay. Fair. Another thing. Just wanted to know what is the capacity of azithromycin and how much do we plan to cater if the opportunity presents for India, U.S. markets?

So actually, we don't disclose our capacities. In terms of API, we do have multiproduct plants. Again, in azithromycin, there are different grades of azithromycin, depending on where the product is going. We are, in India, the largest manufacturer for azithromycin that I know for a fact. So we are okay on capacity. It just depends which grade, where and what we want to capture.

I think from a domestic point, we are covered up till July, if I just remember that correctly. So I think from that point of view, I think we're very well.

This product, is it currently under NLEM?

Yes.

Yes, in India.

The next question is from the line of Bhagwan Chaudhary from Sunidhi Securities.

Yes, just one question on the U.S. part. There is also almost lockdown. So are you seeing any slight effection within the country?

So I said in the opening statement, we are not seeing any disruption in the U.S. People are working from home. Dispatches are taking place and sales are also taking place. So I'm not seeing any disruptions so far.

The next question is from the line of Shivan Sarvaiya from JHP Securities. Sorry, sir, it seems we have lost the line for the current participant. [Operator Instructions] The next question is from the line of Dheeresh Pathak from Goldman Sachs.

This domestic business, we have some hygiene issues and you're underperforming for the last 2, 3 quarters. So any comments you can make on that, like how is the traction there?

Yes. So I think going forward, this quarter, we have seen substantial traction. As you know, it's been a year and we -- this is what we are forecasting. So I think we were seeing things on track. I think we moved beyond disruptions in the domestic business. And I think, unfortunately, I think if we -- what is happening right now, I think we were in a very good situation. Things are moving on very smoothly. Like I said, I think even this month and this quarter, we hope that or we are sure that things should go smoothly, looking at all the measures we've taken over the last 1 year. So we're seeing a meaningful impact of that on at this moment. So and we foresee that impact continue in the quarter as well.

Do you see the primary sales growth that you report in line with the market growth rate or better than that in terms of [indiscernible]?

Yes, yes, yes. Better than the market.

Next question is from the line of Shivan Sarvaiya from JHP Securities.

Sorry, sir, I got disconnected. Sir, my question is general for the U.S. market for Pranav sir. Sir, what would be the broad parameters that the company would evaluate before going ahead incurring the R&D cost and filing for a drug? Because a lot of the approvals that we've been getting are for drugs which have been having small market prices and a lot of players already present in the market. So just wanted to get your understanding on that.

Okay. So yes, it's a very -- not a normal basic question that's COVID-related. But we've actually done a whole exercise over the last few years in terms of which products make sense for us. What are the patent expiry rates, what is the complexity, what is the API availability, what's the market opportunity. Now when we evaluate it versus what happens in the market is also different. Sometimes, when you have your -- first of all, there's not too many products left where there's only 1 or 2 people in the market, right? That's one. So we do a P&L, and we have an internal IRR per product. And we evaluate the whole grid across different forms. That's why -- that's one of the reasons we went into injectables, ophthalmic, oncology so we can differentiate our portfolio as well.

Okay. So what would be that IRR in - if you could give a broad range?

I mean you see all the numbers that we have been rolling around, actually, it's around 30%, 35% is the number that we are looking at. I mean -- would be high something that big, it will be like [indiscernible] ideally.

The next question is a follow-up question from the line of Nimish Mehta from Research Delta Advisors.

Yes, I have one general question for Alembic as well as the industry participants. If we were to manufacture API internally, which we were otherwise not manufacturing, will we be able to match our cost with the China price, sir? In other sense, other words, is it not likely to increase input costs because that was the whole idea behind importing from China?

No, it's very tough to match the Chinese cost in terms of products. So you have to see where the selling price at the end market is high and where the cost of supply or the derisk of supply worth -- is worth it. So product to product, China is much cheaper than India.

But in general, what do you think would be the differential that might occur because of, let's say, a lot of API or intermediate are manufactured in India [indiscernible].

Very tough to answer. There's various product and are intermediate specific, depending what stage of manufacturing, what you're doing. So it's very tough to answer that.

Okay. Okay. Second, again, more or less on the same line, in terms of the manufacturing value chain, let's say, right, from the basic, basic run to the industrial, and the next one, [indiscernible] to intermediate to API to formulation, like barring intermediates, then some of the APIs, are we also kind of self-dependent as a company and related companies for intermediate? Or how is that scenario? Because [indiscernible]

Okay. So for the international business, we don't buy any API from China, it's only intermediates. For domestic, we buy few APIs. And all the other stuff we buy either from India or Europe or any of the other nations, we don't buy the rest in China.

No, I understand, and as I said, more to understand from an industry participant's rather than Alembic's cost base. Can you say how much are we dependent on China, even if we get to manufacture APIs, even if we get to manufacture intermediates, is that true that the raw material for intermediate still comes from China? I'm just trying to understand [indiscernible]

Someone asked the question earlier, and they gave a figure that a lot of people in the industry said that 60%, 70% of the intermediates come from China. So that is there. The other issue on a broader level is that for some of the starting blocks of penicillin and [indiscernible] based material like [indiscernible], those are all coming from China, some say everything. So they're fully 100% dependent on China.

Right. Okay. Okay. So it would take a long way for India as a country to kind of reduce the dependence on China?

Yes. For these products, what I mentioned, yes.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. R.K. Baheti for closing comments. Thank you, and over to you, sir.

Thank you, and thank you, everyone, for participation. It's always exciting to talk to the [indiscernible]. And when we meet again, when we talk to each other again after our Q4 annual results, by that time, hopefully, we have a lot more clarity on COVID-19, the subsequent impact and all of that. So I look forward to talking to all of you at that time. In the meantime, in case you have any questions on the subject, you can always direct to me or Mitanshu or Ajay. So with this, I wish you a good happy weekend. Stay safe and take care. Thank you very much.

Thank you very much. Ladies and gentlemen, on behalf of Alembic Pharmaceuticals Limited, that concludes today's call. Thank you all for joining us, and you may now disconnect your lines.