Alembic Pharmaceuticals Limited (APLLTD) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 H1 FY '21 Earnings Conference Call of Alembic Pharmaceuticals Limited. 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 of Finance; Mr. Jesal Shah, Head of Strategy; and Mr. Ajay Kumar Desai, Senior VP, Finance. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. R.K. Baheti, Director of Finance and CFO. Thank you, and over to you, sir.

Thank you, ma'am. Good evening, everyone. Sincere thanks for joining our second quarter results conference call. As a change this time, we had a Board meeting in the afternoon. But I'm sure you would have got the results by now. I'll briefly take you through the numbers for quarter ended 30th of September 2020. Financials. During the quarter, our total revenue grew by 17% to INR 1,457 crores. EBITDA grew by 33% to INR 455 crores. EBITDA is 31% of our sales. Profit after tax went up by 36% to INR 406 crores, while profit after tax went up by 35% to INR 333 crores. I'm sorry, the earlier statement was profit before tax went up by 36% to INR 406 crores, and profit after tax went up by 35% to INR 333 crores. The EPS for the quarter is INR 17.24 for the quarter. This is on expanded capital on weighted average basis. The previous corresponding quarter, that is September '19, EPS was INR 13.06 that was on the old capital. During the H1, our total revenue grew by 28% to INR 2,798 crores. EBITDA grew by 61% to INR 871 crores. Again, EBITDA is 31% of our sales for H1. Profit before tax went up by 69% to INR 775 crores, while profit after tax went up by 72% to INR 635 crores. EPS for H1, similarly on expanded capital on weighted average basis is 33.25%, this is for H1, 33.25%, versus 19.63% on old capital in corresponding H1 of the previous year. CapEx. CapEx for the quarter is INR 168 crores. H1 is INR 311 crores. Cumulative CapEx for ongoing projects which are still under CWIP, including the preoperatives, is INR 1,825 crores. Financial assistance to Aleor JV for the quarter is INR 40 crores, H1 is INR 65 crores. And cumulative financial assistance to Aleor JV, our total investments in Aleor JV is INR 742 crores. QIP. As you are aware, during the quarter, we made a very successful QIP issue of almost USD 100 million, INR 750 crores. We heartily welcome our new investors, which funds have been used partially for repayment of debt and will be further used for future growth opportunities. Borrowings. The gross borrowing at consolidated level is INR 600 crores versus INR 1,439 crores in June 2020. So we have paid almost INR 800-plus crores of borrowings. Company has about 2,000 -- I'm sorry, company has about INR 273 crores of cash in hand. Net debt equity, obviously, is very low at 0.07. I will now hand over the discussion to Shaunak for his presentation on the domestic branded business. Over to you, Shaunak.

Yes. Good evening, everybody. It's been a challenging year in the Indian market this year. I think despite all the challenges, we could clock in about 6% growth in Q2, and we closed the quarter at INR 415 crores of sales. For H1, we have closed at INR 721 crores of sales with a flat curve. Despite all these challenges, I think for the month of August, we've started seeing a strong traction in our sales. And in September, we witnessed a double-digit growth. So that just gives you an [indiscernible] because that's -- I think overall, we have been able to perform better than RPM in all key specialty segments, especially oral antibiotics, cardiology, gynecology, gastroenterology, antidiabetic, nephrology, urology. And what's more encouraging and endearing for us is the portfolio of the key focus plans within each of these segments are the ones which have been driving this growth. As you know, this is what we've been working towards and it's extremely encouraging for us in this very challenging '19, '20 year. The outperformer for the quarter was by far azithromycin oral solid. We saw significant growth numbers with the long -- along with a strong market share gain for Azithral oral solid. To make this happen, we did our groundwork in Q1 in anticipation of this happening in Q2. We see this trend continuing for the next 2 quarters at least. And our aim is to continue with these acute robust numbers for Azithral, and further consolidate our market shares in Q3 and Q4 for this brand. Another area where we some significant improvement was the area of gastroenterology and gynecology. These 2 segments were lagging in growth over the last few quarters. We have seen this correction, an improvement, and we see this trend continuing forward as an operational and strategic corrections we have taken in '19, '20. So we see strong improvement in this quarter and we expect this improvement to continue. Our cardiology, antibiotic, uro portfolios grew a little bit better than the represented markets. However, we still see significant growth opportunities to achieve growth rates beyond the market numbers, and this is purely based on our portfolio and the amount of efforts and resources we are allocating into these segments. The only area which is still a concern for us is the cough and cold market along with the pediatric segment -- market segments. The market for these products are still in a negative growth for the quarter as per IMS data, nor portfolio has grown in line with this -- has grown in line with the market. But despite all this, we are extremely confident based on our history with this segment of pediatricians and cough and cold and for antibiotics that we will return to -- we'll start returning to outperforming the market. As soon as the market reaches into some kind of neutral growth category, we'll be able to also grow in this segment. So we are not concerned by it because we've been doing this performance of cough and cold for a fairly long time. And despite the market being down, once the market comes back to some level of normality, we can come back into growth into this segment also. So this is the quick snapshot of India business. I will pass it on to Pranav for the U.S. business.

Thanks, Shaunak. As regards to the API and the international business, both of them have had a good quarter, driven by sales growth across the -- all the markets. Our R&D expenditure was INR 185 crores in the quarter, which is about 13% of sales. With the easing of the lockdowns, the R&D efforts ramp back to what they were pre-COVID. We filed 7 ANDAs during the quarter and cumulative ANDAs at 198. We received 6 approvals in the quarter, including 4 tentative approvals. We cumulatively have 131 ANDA approvals, including 18 tentative approvals. We launched 3 products during the quarter, and we plan to launch 6 more -- about 5 to 6 more in the third quarter. Talking about Rhizen, our drug discovery venture, Rhizen, had outlicensed its oncology molecule, umbralisib, to TG Therapeutics. TG Therapeutics had announced in the past that acceptance of this NDA by the U.S. FDA for the treatment of patients with MZL, which is marginal zone lymphoma, and FL, follicular lymphoma. As per the press release, I think they're targeting the regulatory submission for the CLL indication, which is chronic lymphocytic leukemia, for umbralisib, along with their proprietary product, ublituximab, in early '21. They also announced -- Rhizen also announced last week an exclusive licensing arrangement to develop and commercialize its second oncology product, Tenalisib, in Q1 by pharmaceuticals from China. We've put a press release out. Under the terms of the agreement, we'll receive commercial milestones of $249 million as well as double-digit royalties on net sales. Tenalisib, as you may know, was also, in the past, granted fast track and orphan drug designation for the treatment T-cell lymphoma by the U.S. FDA. The business, international formulations business grew by 21% to INR 779 crores for the quarter and INR 1,550 crores for the first half. The U.S. generics grew by 8% to INR 582 crores for the quarter, and 33% to INR 1,177 crores for the first half. Last year, Q2 was also an exceptional quarter. So we're happy that we've surpassed the performance. Ex-USA Generics continued its robust growth and grew by 84% to INR 197 crores for the quarter and grew by 73% in the first half. API business has had a very good Q1. It had a good Q2 as well, and it grew by 29% to INR 263 crores for the quarter. It's been a very good first half for the API business as well. So by and large, all the businesses have been doing pretty well, domestic as well as international. We're pretty happy with the performance as well as on the back of the massive CapEx that we are on the last stages of. However, there have been a lot of questions from our investors on the sustainability of the U.S. business as well as the impact on the EPS, operating expenses of the new plants which are currently capitalized, starting in the P&L. Although it has been our consistent practice not to give a guidance, we thought of doing a onetime deviation and give you some broader understanding of our earnings. I'll repeat, this is a onetime guidance and we don't intend to give it on a regular basis. We will also not get into an itemized discussion, and I hope the audience would respect that. The company has had a satisfying performance in the last 2 years on account of disproportionately high spend on R&D as well as expanding our capacity and capability. Barring unforeseen circumstances, we are guiding to an EPS of INR 60 per share in the current financial year. As regards to the next financial year, FY '22, there will be an additional expense of INR 450 crores hitting the P&L on account of the new formulation plants. In spite of this increase in operational expense, we expect an EPS of INR 50 per share in FY '22. We expect the increase in revenues in FY '23 as the new capacity start, but we're not giving an EPS guidance for FY '23, as it's still a way off. I hope the above gives an indication of where we see the business moving and our thoughts on the same. Today, I have given a little more detailed opening statement. And I'll open the floor up for Q&A. Thank you.

[Operator Instructions] The first question is from the line of Vishal Biraia from Aviva Insurance.

Sir, a few questions. Shaunak, we appreciate the guidance, and we do respect not getting into too much details, but some qualitative assessment -- some qualitative insights into what is the basis for INR 60 in FY '21 would be very helpful for -- in terms of international API and domestic?

Mr. Baheti, would you take that?

Sure. So -- normally, I understand. But you see, we are already down to INR 33. And based on our understanding of the business, the orders, the market situation, we think that barring any unforeseen circumstances, INR 60 should be a good reflection. This only -- the whole objective of giving this guidance was to allay the fears of some investors that how much of business is sustainable. So we are actually making a statement that most of the business is now sustainable and stable.

Okay. And just to elaborate a bit on this. Like INR 4.5 billion is the additional expense in FY '22, what is the additional expense that you would consider for FY '21?

So in FY '21, there would not be much of -- I mean we have not at least considered much that the plants will be commercially -- I'm talking of new plants -- will be commercially operational because the plants will have to be audited first by the FDA. And obviously, after that, we must get ANDA or those approvals and then only we can start the commercial production. So we have not really factored anything in FY '21.

Okay. And just 1 question. For the new plants, for which of the facilities have we invited U.S. FDA for pre-approval inspections?

Yes, we have been doing filings from...

Right now, we've done filings from the F2, which is the oncology facility as well as F3. We have some goal -- FDA goal dates also coming up. But I don't know, this is something that I'm not sure how the FDA is going to come. The filings are pending with them or how -- because due to COVID, we don't know when they're going to come because it's a new facility, so they will have to come for a physical audit. So let's see what happens over there.

The next question is from the line of [ Sweta Jain from ANS Wealth ].

Sir, a couple of questions. First one, we've reduced debt this year. Do we have further plans of reducing debt in this year and next year?

So actually, we have repaid almost all of our short-term debt. Now it's only long-term debts which are not due now anymore in this year. So these will be repaid when their due dates are there.

Okay. Okay. Great. That's helpful. And sir, I just wanted to know, we have seen our U.S. generic and API business grow. But if I look at on a sequential basis, our U.S. business has declined by 2% compared to quarter 1. And API has normally -- has been flat. So can you throw some color around it, sir, as to what was the reason?

So it's very tough to look at the business on a sequential quarter-on-quarter business, especially if you see the U.S. generics, last year or the last 2 years, have had exceptional growth. So we've been maintaining that business, and we've been stabilizing it. Sartans is one area where we had a lot of business as we get new competition. So what happens is you have new competition and you have new launches. So as we keep increasing, adding more launches, we'll hopefully keep growing, and that's why we've given the guidance for the next year. API business as well, first quarter was an exceptional quarter because of the COVID-related issues and a lot of supply chain opportunities. So that's one of the reasons.

Okay. Sir, just like even if I look at the API from a 4-year CAGR, we are clocking like close to 3%. So how should one see the API business going forward? If you can throw some guidance around this, sir, that would be great.

So -- yes, Pranav, do you want this?

Go ahead.

So API business actually, we have not been able to make much investments in API in -- for adding capacities for 2 reasons. One is we were focusing on completing our OSD projects, injectables and the new OSD plant. Second, getting commissions for API was also a little tedious and time consuming. Now fortunately, both the things have now come in to our favor. The formulation facilities are all ready. And government is now more liberal in giving or, I would say, Environment Ministry is now more liberal in giving expansion permissions because they want to have more of Indian API medication. So I think now we are also making investments in API, and we see a good growth opportunity for API even from business perspective.

Okay. Okay. So if you can give -- I know normally you don't give guidance, but if you can give some guidance in terms of API business, what kind of growth are we looking at from a 4 or 5 year perspective, sir? So is it going to be like double-digit growth as what we are targeting from a 5-year perspective in API?

Sorry, it is a long guidance...

We don't give us -- we don't -- yes, we don't give a guidance. The only thing I said in the last call is the first quarter was good. And we hope to see that kind of momentum continue through the rest of the year as well. And that's why you've seen a decent quarter 2, but we haven't given long-term guidance. I'm sorry, we can't.

Okay. Okay. Sir, just 1 last question, if you're comfortable answering this, with respect to the expense that we are going to -- you've given a guidance of booking of INR 450 crores of expense in FY '22. Sir, can we assume that is the bulk of the expense booking is going to happen in FY '22 and then from '23, '24, like just want to understand, this INR 450 crores, a bulk of the booking already will happen in FY '22?

No, no. This is -- bulk of the -- I didn't understand. I mean this INR 450 crores will be additional operating expenses [indiscernible] on the new plant. So that will be the -- that will be recurring every year with small increase as we already just discussed.

Yes. So from FY '22 onwards, that means can we assume INR 450 crores will be an additional -- that will be the new base, but that will be only for the new plant, sir, right?

That is only for the new plant. All the existing expenses will continue.

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

Just understanding this sartans opportunity better. So as you mentioned, some competition is coming. So have we seen some moderation in volume and prices and despite that, we've been able to see U.S. flattish or still strong? And same is the [ trend ] for API? Or we would see the impact from Q3 onwards?

So for the sartans, as I said in the last call that, yes, there have been entrants coming in, and they've been picking up business. Also the sartans was this good 15-odd products, right? And so some people have got more spent in 1 or the other. So there have been some price adjustments. There have been some market share increases, but by and large, it's pretty stable, a little bit erosion keeps happening as per normal. So we've grew -- in spite of some erosion, there have been some other opportunities as well and some new launches. So that's what we are seeing in the market. As regards to the API, sorry, I didn't get your question.

No, no. So that's what I'm understanding, like, so there is no incremental pressure that we can see in Q3? Or should we -- whatever pressure of incremental competition is already baked in, in Q2 numbers. That's what I'm trying to understand.

Yes. It's there. I mean, again, you never know. This is something I can't predict if someone really drops prices or someone goes off the market. So, yes, then they would -- yes. Yes.

Okay, perfect. And secondly, on the kind of launch and approvals you're expecting for this year and next year? If you have said that, maybe if you can repeat because I missed the opening comments, if that is okay?

Yes. So I think we've -- in the first half, we've launched about 6 products. And I think for the next half, again, we'll have at least 10 to 15 launches. So we'll end up at about 15, 20 or something like that for the year. And similar next year as well, maybe even higher.

Okay. Because the question I asked is because the kind of approvals we have seen of late, these are the smaller ones. So we are going for launches for most of it? Or -- and you are expecting some meaty ones also or these -- to start with these would be all smaller launches and approvals?

I think it's a combination, Prakash. And to be honest, I don't know who else is going to launch and when. We have some interesting launches coming up this quarter and for the rest of the year. And next year onwards is when, hopefully, we'll see some launches coming out from the new facilities from the injectables.

Understood. Fair enough. And lastly, your take on the volume offtake and pricing in the U.S. markets? We have seen some supply chain improving, but in general, would you say volumes have increased or it is similar to last quarter and same with pricing in general?

In general, it's the same. I don't think there's much change. As I said, sartans, yes, there is some little competition. But by and large, it's been okay.

The next question is from the line of Anmol Ganjoo from JM Financial.

Congratulations for a superlative quarter. It was fairly well diversified. So 2, 3 questions. One is that we expected that a lot of costs related to staff and travel, et cetera, would come back this quarter given that this is a fairly more normalized quarter with some of the activity kicking back. And that doesn't seem to have happened. Any particular reason for that? Or this is -- on an annual basis, this is the new number that we should be looking at? Or some of the cost savings that might have happened along those lines are of more permanent in nature?

No, not really. I mean if you look at it -- Anmol, if you look at employee cost, if you look at some of the other costs, the costs have gone up as compared to the immediate preceding quarter. So I don't know whether you are comparing with June quarter or September previous year. It is -- definitely -- the costs have definitely gone up beyond the June quarter. Some of those travel, promotions have really picked up. Employee costs have gone up. R&D cost, you would have seen, has gone up. So -- I mean we are almost at a pre-COVID level as far as expense is concerned.

Sir, I was just wondering if there was any pent-up costs which would have been incurred this quarter, but that doesn't seem to have happened and that seems to have aided the case of margins because margins have been very strong. So that was my first question. Second question is on API and ROW, we've again demonstrated very strong growth. Just trying to understand that what is driving, in particular, the growth in these 2 segments? And where are we on capacity regards these? Because as you said that API seems to be emerging as another interesting area of opportunity, do you think our CapEx mix could change or we have full capacity? Just trying to understand some of the drivers around these 2 segments, again, which recorded very strong growth this quarter.

Yes. So the ROW business, as you know, it's only the few markets that we focus on; Europe, Australia, Canada. And we work through our partners in most of these markets. And we had supply chain issues in the past. I think that's gone through. So I think with better supply in the market, our partners are picking up more share or they're able to supply better in the market. So that -- I see the trend continuing for the rest of the year. And hopefully, next year, we will slowly start adding to this business as well. As regards to the API and capacities, yes, we've been constrained with capacities because it's been really tough expanding due to [ the organic permissions ]. But I think we are through -- we've been doing incremental investments in API capacity as well as part of our ongoing maintenance to debottleneck. And I think we should be okay moving forward. And it's work in progress. There is some API expansion already underway.

Right. And one question on the big picture of U.S. market. So for example, if you look at F '22, most of our capacity would be online. I don't want to labor over the sartan opportunity beyond a point. But if you look at 3 years out, do you think we are kind of now well set to take this sustainable run rate to the next level? And how is the 3-year picture looking from a U.S. opportunity standpoint and landscape standpoint? So FY -- I mean what would FY '23 turn around on the back of these new capacities look like from a U.S. top line run rate? I know -- I'm not looking for a specific number, but any directional color would be helpful.

So it's -- again, it's not giving any guidance per se, but with the new capacities and more importantly capabilities coming up, the U.S. market looks interesting, definitely. As I've said in the past, can we envision going to $400 million to $500 million kind of revenue? Yes, definitely. I think that's what we would aim to go at in the next 3 years -- 2, 3 years or so.

That's helpful. And one last question before I get back into the queue. Shaunak, congratulations on a spectacular turnaround, at least sequentially on the domestic business. Just trying to understand that if you look at this new base that we have on the domestic business now, how much of that -- when you disaggregate this across therapy areas, how much of this would be attributable to some onetime demand drivers versus some of the structural changes that you took in the past 24-odd months to cut the tail and many other things to rationalize portfolio and drive from a new base? And to that extent, how do you feel about the growth prospects of this portfolio from a 2-year time horizon?

Okay. So the onetime opportunity is, like I said, with azithromycin oral solid I mentioned, outside of that, there are no other onetime opportunities. Also, if I could take a more composite view, like I said, the azithromycin oral solid, it's not a onetime opportunity but there are heightened demand for it. And being the leading brand in this, definitely, we'll be able to get good market shares in this segment. So if I answer your question more from a market share point of view, this additional gain in market share from azithromycin solid, will it go back down to pre-pandemic levels? No, I think we'll maintain this market share and we'll actually get this market share to grow beyond that also. So that's one way of looking at it, though it doesn't answer your question completely. If I look at the net portfolio, I think there've been plenty of areas where we've been hammered and the market has got hammered. And I think despite that, we've been able to kind of grow. So what I expect going forward is that if azithromycin growth numbers do tend to moderate out a bit, I expect that the cough and cold portfolio as well as the balance of liquid for antibiotic portfolio [indiscernible] big chunk products. I expect to pick up on those areas, which at this point is bit of a [indiscernible] for us. So I think net-net going forward should be kind of even out.

That's helpful. But just one last one, if I can squeeze in. As a consequence of COVID, what we're picking up from various industry sources, at least domestically, is that there's a lot of change in marketing strategies and so on and so forth. So do you see a consolidation of incumbents across products and therapy areas and wiping off tail because some of the practices of MRs, visiting doctors, et cetera, seem to have suffered. And a lot of people allude to the fact that it could be permanent? And where does it position our portfolio from a -- again, 1- to 2-year standpoint?

So I wouldn't want to get around this -- comment on this. The only thing I'd answer is if you look at the growth numbers and been tracking growth numbers of top 20 companies to the top 30 companies, 30 to 100, 100 to 150, as you see the growth numbers, if I split the business up, I think definitely growth from companies of 50 rank onwards, I think it has definitely been a large market share [indiscernible] those companies. So that trend that I've not seen the trend slow down or come around. So -- I mean as long as COVID is around, we expect that trend to continue in that direction. In regards to marketing practices and medical reps meeting doctors, I mean our view is that we've been able to normalize that now. And it's just that it takes a little more effort to meet doctors compared to how it used to be. A lot more planning is required and a lot more time and effort to kind of plan these doctor meets sorted out, so they're available for a meeting. And as long as you have something value-add to the doctor in this meeting, doctors are more than willing to meet medical reps in the industry. So that's the only change we've seen. But -- I mean I wouldn't say it is dramatically [indiscernible]. So -- I mean it would be too much for me to say that the industry is going to change overnight, and a lot of incumbents are going to get wiped out. I think that's an exaggerated statement in my view.

That's helpful. And congratulations once again for a great quarter.

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

And congrats for good set of numbers. So just I wanted to understand your guidance much in -- much more in detail. So just from the perspective of new launches, you have been guiding around 20 ANDA launches every year. So how many of those are going to be towards high value? And how much are going to be more like a commodity product launches? I would say, relatively lower contributors?

So Bharat, we don't guide on the product differentiators, what is high, what is low. Because in a sense, we also don't know what's going to happen, how much competition is going to be there. So we don't guide on that. Hope you understand.

Understood. And sir, we have been actually -- we have been a bit apprehensive of price decreases in sartans and something -- this is something which we have been alluding that it can happen until we are in second half of FY '21. So when we are giving a guidance of almost INR 60 earnings and after that INR 50 earning in FY '22, so are we building in lower pricing for sartans within that guidance? Or we are expecting a stable -- shift in the sartan space?

So again, it's a combination of the new products and the new launches we have and the erosion that we'll see across the board, not just sartans. So with our comfort in the business, this is what we are guiding at.

Understood. And Baheti, sir, there has been a sharp reduction in the receivable as well as inventory days. So is there any one-off or something you can call out, sir?

So if you recall, I think last time we had conveyed -- because you are comparing with March number, balance sheet numbers are given any quarter. So in March, U.S. receivables were held because of -- at that time, some disruption in collection, et cetera, which I think that we had got collected everything by April, and we had made a mention some -- in June call. I think we have been good at our receivables and inventory is back to the standard days.

So it is going to remain at the current level?

So there is a change in working capital profile. Once the new plants start getting operational, the launch inventory starts getting built and so on and so forth. But so far -- till that, I think it will be stable.

Right. And sir, last one from my end. So we have actually been calling out for Aleor's R&D expenses as well as the operating expenses every quarter. So can you share for this quarter as well?

No, I didn't get you. I mean I think all of our R&D expenses are expensed out. Even from the facilities -- new facilities, whatever exhibit batches, et cetera, we are taking, that is being expensed out.

Even Aleor?

Aleor is getting -- can you take it from Mitanshu off-line?

Sure, sure. Sure.

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

And congratulations for a very strong quarter. Sir, I had a single question. I'm sure this guidance for FY '21 and '22 sorts a lot of doubts which we had regarding the earnings and the sustainability of earnings for the next 2 years. So just -- now just moving out and just wanted to understand from Pranav. So sir, how do we look at the -- so we have -- so now we have built 3 -- we have built 4 plants. One is the oral solid plant at Jarod. Then, you have the injectable plant, you have the onco injectable plant, and you have your Aleor facility, the topical plant. So just wanted to understand how should -- just from a framework perspective, how do we see the utilization of these plants going up starting from FY '22, once the -- once the Jarod facility would be operational? And -- so how do we see the utilization building up? Any perspective on this would be helpful. And I'm not -- I'm sure it's difficult for you to predict also because it's something related to regulatory approvals and how everything will play out on the approval side. But as a framework, how do we -- how do you see the utilization building up over the next -- starting FY '22?

So the Aleor plant is already commercialized, right? So that's already got some products. And as we get more and more approvals that you'll see more coming from the plant. The Jarod OSD facility, that we're waiting FDA to do either online or a physical audit. The general injectables, which is the largest of the plants, that will -- also we are awaiting FDA visit, products have been filed already. So it's -- I think over the next year or so, we'll see -- it really depends on the regulatory. So it's very tough for me to say. But when they come, and once they come, then hopefully, we'll start seeing a buildup and the launches coming because filings are in place for all these facilities.

Sure. And I'll -- sure. Understood. And sir, just on this one. So in terms of the assets which would quickly be utilized, where the utilization would ramp up very quickly, if you could rank it in order -- in order of where you would have expected to happen the fastest and where you would expect it to happen in a larger time frame. So would it be fair to say that Jarod would be the fastest to be utilized and then following injectable plants and then the Aleor plant? Or how do you rank it? And what timeframe do we expect?

It's tough to say that, but see -- okay, I'll tell. Actually Jarod is easiest because we already have a matching pipeline of OSD. So once approval is there, then you can always shift products there. So Jarod s the easiest to do. In terms of future and growth opportunities, I think the general injectables is the most exciting with a lot of interesting products and a lot of filings are there. The onco is a little more long term because a lot of the onco products [indiscernible] minus 1. So there will be some time diligence to get approved. And Aleor has already started commercializing. So as and when the approvals come, we'll see more of it.

Sure. And just final question for me. And the cost structure for the rest of the business remains in line with what it will be. I mean we don't expect -- so all of the -- even -- so the earnings estimates are factoring in all of these changes in the cost structure as well, once you -- once we end the COVID and the expenses on the India side also build up some -- to some extent?

Yes. Obviously, I will not give you a number without factoring all of that.

Sure, sir. Sure, sir. Congratulations for a very strong quarter.

The next question is from the line of Vishal Manchanda from Nirmal Bang.

I just wanted to check with respect to umbralisib, do we anticipate any milestone income on approval? So basically, whatever Rhizen gets, would that -- would Alembic be getting that and booking that in the P&L?

Yes. Pranav, I'll take this. So in the past also, we have taken -- we have got milestones -- I mean Rhizen had got milestones, but actually, that got refunded back to APL against our investments, which we did in Rhizen. So now our investments have been repaid. And now whatever milestones are received by Rhizen, to the extent they need for their future development, they will retain, the balance they will distribute to the partners.

Basically, whenever there is an approval for the [indiscernible] it has been filed for, obviously, there would be a regulatory milestone on that. And probably that would happen around FY '22 time frame. So are we [ accreting ] that income into our [indiscernible]?

I don't wish to get into each of these items. I mean something can happen, something may not happen. We have a very broad understanding of our business. And I think you should be, at this moment, satisfied. As we come along, we pass some more, then probably we can discuss more. At this moment, I don't wish to elaborate any further.

Right, sir. On the API and the rest of world business, how much...

Sorry to interrupt, but the audio is not very clear, sir. May I please request you to use the handset mode while speaking?

Hello?

Vishal, your voice is not very clearly audible.

Am I better now?

Just put in the last question.

Yes. So on the API -- on the growth in API business and the rest of world business, would azithromycin be a large contributor to this growth that we are seeing in the second quarter? And if it is, then can that [Technical Difficulty] basically?

So I didn't get you because I think you were breaking up, but I think you mentioned whether azithromycin is part of the ROW and API growth. ROW, azithromycin, no. But API, yes. Azithromycin is an API that we manufacture and we've got customers who've been buying with us. So I think it's sustainable going forward. As regards to ROW, it doesn't have anything to do with azithromycin. It's just a regular portfolio that we serve.

Okay. And could you give some details on the ROW growth?

I'm sorry to interrupt but your questions are not audible. Requesting you to please rejoin from a different number, and you can come back in the question queue. The next question is from the line of...

Also, may I request the participants to restrict their questions to 2 because we are running out of time. We still have some questions in the queue.

Sure. Next question is from the line of Dheeresh Pathak from Goldman Sachs.

First question, on this INR 450 crores of cost that is in the P&L., this is including depreciation also, right?

Yes, that's right.

Is there a breakup available? Or this is just the number that you're sharing right?

Then you can ask client-wise breakup, then -- I mean this is a broad number for all the 3 new plants together.

Correct, So just to -- okay, that's fine. But just to gain my understanding. So in FY '22, once we have this INR 450 crores, there is no capitalization of any cost that will happen, right, in FY '22 then?

That's right.

Okay. And on the CapEx, if you can just refresh the FY '21 and '22 numbers that you are finding?

Yes. I think it's part of opening statement. It will be on our website. '22 number, of course, we have not discussed.

The next question is from the line of Sameer Deshpande from Fair Deal Investments.

Most of my questions have been answered.

The next question is from the line of Milind Karmarkar from Dalal & Broacha.

Well, congratulations on a great set of numbers. My questions have been answered.

The next question is from the line of Tushar from Motilal Oswal.

[Technical Difficulty]

I am so sorry to interrupt, but your audio is not clearly audible sir.

Am I audible now?

Sir, we are unable to hear you well.

Am I audible now?

Sir, no, your questions are not audible at all.

Am I audible now?

Sir, I'm sorry, your audio is not audible. If you can hear us, please dial-in from a different number, and you can rejoin the question queue for your questions. The next question is from the line of Tarang Agrawal from Old Bridge Capital.

Good evening and congratulations for a great set of numbers. I just wanted to ask [Technical Difficulty] injectables?

Can you repeat your question, please? We didn't get you.

Of current revenue in Latin America generics, what percentage would be from injectables?

[indiscernible].

We haven't -- we haven't given a guidance of the percentage of revenue that is coming from either of the segments.

Okay. Fair enough. And [indiscernible] injectables?

Again, we haven't given a breakup of the filings according to our dosage forms as well.

The next question is from the line of Mukesh Prajapati, individual investor.

My most of questions have been answered, but even though, can you throw some color on the domestic business and specifically in chronic segment, that would be a good help, sir, for domestic business.

Yes. So the domestic business, like I said, it's -- I think all our chronic business, especially cardio, diabeto, gastro, gynecology, oncology -- sorry, urology, nephrology has done well. Our growth has been largely in line with the market growth pretty much. Like I said, going forward, we expect all these segments for growth to get better. And as I said in my opening statement, where we are today, I personally see a lot of -- I see enough scope why we cannot increase our performance to surpass the market growth in the chronic segments and that is what we're working towards. And that this is based on our portfolio of products [indiscernible] business unfold, how competition is unfolding and based on that, I think -- I mean my objective is to drive better than market growth consistently quarter-on-quarter as we keep moving forward over the next year. I mean that's what I -- that's what we are working towards.

Right, sir. Because so many things happening in chronic segment that some SGLT coming out of patent, even DPP-4 is coming out of patent. So Indian market is gearing up for all these off-patent products. And I think patient is going to get affordable medicine from good company like Alembic. I think that's going to be very interesting in coming days.

Yes. Yes, sorry. So we have also launched a new DPP-4, but [indiscernible]. So we are pretty much geared up and organized to launch all the new SGLTs and DPP-4s. Also a lot of other smaller niche cardio products are going off patent. So we are in the process of launching. We have launched whatever has been -- whatever has expired. And going forward, we are trying to launch more as they are going off patent. So I agree.

Any, sir, prediction for growth next year for chronic segment?

I think, like I said, we'll grow in line with the market growth. And with the chronic, we want to try to outgrow the market growth number. So that's the only guidance I can give.

The next question is from the line of Anubhav Aggarwal from Crédit Suisse.

One clarity on the guidance actually, but just trying to understand, so fiscal '22, we get additional expenses of about INR 450 crores?

Would you repeat your question, please, Anubhav? We didn't clearly understand.

Sure. I'm just going to a better area. Okay. So I was just saying, sir -- just asking of the guidance, [Technical Difficulty] guidance for FY '22, this additional expenses of INR 450 crores, this is [indiscernible] adjusted EPS is about INR 20. INR 20 are not there, effectively, we're guiding that. So if these expenses were not there, we would have done a EPS of INR 70, right? That's what to understand? Or is it that this INR 450 crore expenses will not fully come in respect to '22 or only part of it is coming?

So actually, I don't know how much of this will be coming on factoring INR 450 crores full -- assuming all the plants start operating in the first half -- first half or first quarter of '21, '22. But as I said, it will depend on the FDA inspections, approvals and the ANDA approvals.

So we should be safe in assuming that full INR 450 crore expenses may not come in fiscal '22? Otherwise, what's happening is if I assume that...

I'll be happy if they come. I mean I want the plants to start running...

No, actually, I'm just trying to understand it a little better in the sense that if we have assume full expenses, then it's an increase that we do INR 60 EPS this year and then we're guiding to INR 70 next year, which is a very good growth of 16%, 17%, and despite the good support we had with -- on the API and on the U.S. base this year. That's what I was just trying to understand.

Yes. It's an observation you are making. So I don't have to respond. Go ahead. Anything else, Anubhav?

Yes. Yes. On the API business, I had a question. So in the quarter 1, generally for the sector, we saw that most companies saw that same customers were buying more, the same number of products as the customers were stocking up more on the inventory side. You had benefits also. Additionally, azithromycin was the extra benefit to our company. But in general, what's the trend that you're seeing now? Have the customer inventory levels largely been same, your observation for the industry? Or it's come down or the growth momentum that you're maintaining is largely coming from new set of customers?

So what happens is during that time, we saw, yes, azithromycin was one molecule where there was a lot of demand. So that was some demand that came in. As regards to other products, we have -- we've been constrained with API supply in the past. So it's pretty much, most of the business is all sustainable. Yes, there may be some peaks, but now it's a little more normalized. Moving forward, whatever business we picked up will continue because we're supplying to all regulated markets. We're not supplying to the nonregulated market. Hence, for someone to make an API switch also, they will TDS. So the business will stay, and it will continue growing, in my opinion.

Okay. Sure. And, Pranav, just some clarity on this. On the inventory level of the customer, have you seen any change or no change? The customer inventory levels are largely standard or normal.

I haven't seen any change there.

The next question is from the line of Abdul Puranwala from Anand Rathi Securities.

Hello? Am I audible?

Yes, sir. You are.

Yes. Sir, my first question is related to debt. So I mean, through the QIP, we have -- though we have paid most of the debt and from next year, we are guiding that there will be some additional expenses [indiscernible] what we are capitalizing right now. So sir, how do we see this debt figure going up starting next year? Do we remain confident that most of these additional expenses or the expenses for the new plant would be largely paid off through internal accruals or we might have to raise a certain amount of debt in the future?

So look, at the time of QIP, we have said that the QIP proceeds will be used for repayment of debt as well as for funding growth opportunities. So obviously, for the CapEx, the current year and the next year, will be funded by part of these proceeds. Of course, you can't keep money idle. So we have repaid borrowings ahead of time in some cases. And if need be, we can borrow again. But for meeting the additional expenses, I don't think we'll need additional borrowing. Obviously -- since I'm giving a guidance, obviously, the expenses will be met out of the earnings.

Sure, sir. And sir, my second question is more related to this INR 450 crores of savings. So sir, as discussed by earlier participant, that amounts to close to an EPS of -- addition cost of close to INR 18 to INR 20. So, sir, what I want to basically understand is what is the driver which could boost some amount of growth in FY '22? Would this be largely a function of the top line growth? Or we see margins moving ahead from the 30% level, what we are currently clocking in?

I think we are already in a pretty healthy margin levels. So the growth has to come out of higher business, higher revenues. I fear that people who have put in repeat questions, I may not be able to take them now because we would be running out of time. And they are most welcome to write to us. And you can send your mail and we'll be happy to respond. We'll take a couple of more questions and then we'll have to wind it up due to [ requirement ]. So take a couple of questions, ma'am, and then we can announce closing.

Sure, sir. The next question is from the line of Nitin Agarwal from IDFC Securities.

And congratulations on a pretty good set of numbers. You had a very solid cash flow generation in the first half [indiscernible] coming through to the financial capacity [indiscernible], so how should we -- any answer on how we propose to utilize the same for growth going forward? I mean are there opportunities to grow? And what kind of opportunities at a broader level that we look at given our financial situation now?

Pranav, would you respond, please? Hello, Pranav, you are there?

Mr. Pranav, you can please go ahead.

Yes, yes, I can.

Nitin, would you -- yes, go ahead.

I didn't get that. Can you just repeat? I'm just on another line.

Nitin, can you repeat the question, please?

[Technical Difficulty] cash flow generation that you've had in Q1 -- in H1 [Technical Difficulty] financially, we are in a very solid position right now in terms of the capacity to invest back into the business. And -- I mean any thoughts on what kind of opportunities [Technical Difficulty] opportunity does it enable us to leverage going forward? Is it going to be more genetics sort of [indiscernible] or are there new verticals like [Technical Difficulty] how should one think about [Technical Difficulty]

Yes. So our business is pretty much only generics right now. And one of the reasons for the new investments is to get new capabilities, right? So new capabilities that we're going to get is injectables, derm, onco, onco injectables. That's the new capabilities that will be coming up in the future. That's where we're seeing growth from FY '22, '23, '24. A lot of this will come from that, from the newer capabilities. Whereas right now, it's -- what we're doing is only the regular generics, OSD, which is our current business. So that -- if that answers the question, you'll see more towards injectables and derm and ophthalmic in the future as well.

No, Pranav, my question is -- I think this is already -- you've already made this hard work in terms of the hard investments, which are required for some of these capabilities. I mean where do we go from there in terms of the financial capability that we have? Does it -- are we thinking about the incremental opportunities for the business -- incremental domains [Technical Difficulty] as we go forward?

Yes. No, it's a good question. And I've said that in the generics space, once you achieve a threshold, going up to about $500 million, $600 million is, it's easy and is possible. We are also seeing -- envisioning that. Moving forward, after that, it gets a little harder, and you've seen that with some of our peers in the industry. So we do have thoughts around what we want to do. It's still early days. I still see another 4, 5 years where this will continue. So we do have thoughts around it and we're trying to see what are areas that we do want to get into. There are some areas that we definitely don't want to get into, that is biosimilars and investment required is very high at this stage. Biologics as well. But we're evaluating other opportunities. And we slowly, slowly start investing in those ones in another year or 2 once these are all stabilized.

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

Sir, just some quick questions on the cost structure. How much spend, particularly in the domestic market, how much of the costs have already come back? And on a sustainable basis, do you see it settling at a lower level? And any estimates that you have for that? And the second would be on the raw material side, any trend that you would like to highlight?

Shaunak, you would take it? You want me to do this? Shaunak?

Go ahead, Mr. Baheti. You can take it. My line is not so good.

Okay. Okay. So yes, Saion. So I think you can treat Q2 as a very representative quarter, though in early part of Q2, still the field activity is a little restricted where we have used more of digital means. But I think in second half of Q2, probably activities had picked up. So as far as our expenses are concerned, I think Q2 was a fairly representative number. And going forward, of course, we'll keep getting best efficiencies out of expense. So that's always the case for the company. As far as material is concerned, I think material costs are now back to -- I mean as a percentage of business, back to pre-COVID levels. A temporary spurt, which we had seen in API prices, have, I think, stabilized, come down or whatever. And it's not much of impact, except -- I mean there will be some odd APIs where costs are still high, but it's okay. It's part of life.

Mr. Mukherjee, does that answer your question?

Yes.

Well, ladies and gentlemen, we take that as a last question for today. I would now like to hand the conference over to Mr. R.K. Baheti, Director of Finance and CFO, for his closing comments.

Thank you very much. My apologies for not being able to take all the pending questions. Most of them were repeat and I -- because we are running out of time. Thank you for your active participation. I reiterate that you can always write to us and we'll be happy to respond. And a very good evening to all of you. Thank you very much once again for joining the call and stay safe. And this is also an occasion for me to wish all of you a very happy festival season, happy Durga Puja and Diwali. Thank you very much.

Thank you. Ladies and gentlemen, on behalf of Alembic Pharmaceuticals Limited, this concludes this conference. Thank you all for joining. You may now disconnect your lines.