Alembic Pharmaceuticals Limited (APLLTD) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Alembic Pharmaceuticals Limited Q3 FY '21 Earnings Conference Call. We have with us today from the management, Mr. Pranav Amin, Managing Director; Mr. Shaunak Amin, Managing Director; Mr. R.K. Baheti, Director, Finance and CFO; Mr. Mitanshu Shah, Head, Finance; Mr. Jesal Shah, Head Strategy; and Mr. Ajay Kumar Desai, Senior Vice President, Finance. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. R.K. Baheti, Director, Finance and CFO. Thank you, and over to you, sir.

Thank you very much. Good evening, everyone. Thank you all for joining the third quarter results conference call. I'm sure you would have received the results by now. However, let me briefly take you through the numbers for the quarter ended 9 months ended 31st March 2020 -- I'm sorry, 31st December 2020. Let me begin with financials first. During the quarter, our revenue grew by 9% to INR 1,314 crores. EBITDA grew by 31% to INR 401 crores, which is 31% of sales. Profit before tax went up by 24% to INR 352 crores and profit after tax went up by 25% to INR 293 crores. I'm happy to inform you that for the first time, Rhizen, our associate company, after recouping all the work in progress, CWIP, posted a profit for the first time, and our share of profit of INR 26 crore is included in the bond numbers. EPS for the quarter is INR 14.88 per share. This is for the quarter versus INR 12.42 in the corresponding quarter in the previous year. This year quarter, of course, the capital is enhanced. So this is an enhanced capital, INR 14.88. During the 9 months YTD December, our total revenue grew by 21% to INR 4,113 crores. EBITDA grew by 40% to INR 1,272 crores, which is 31% of the sales again. And profit after tax went up by 52% to INR 1,126 crores, 1,126 crores. Profit after tax went up by 53% to INR 927 crores. EPS for the 9 months, again, on the expanded capital is INR 48 plus per share on weighted average basis versus INR 32 per share on the old capital in the corresponding 9 months in the previous year. CapEx. CapEx for the quarter is INR 197 crores, cumulatively for 9 months is INR 509 crores. And cumulative CapEx for the ongoing projects, the new products -- projects, which are still under CWIP yet to go for production is about INR 1,700 crores. Aleor -- our investments in Aleor is about INR 60 crores for the quarter and 9 months is INR 125 crores. Cumulative funding to Aleor is INR 800 crores. As we have reported last quarter, net borrowing is very low now at around INR 300 crores, gross borrowing is INR 600 crore, net debt-equity is marginal at 0.08. I will now hand over the discussion to Pranav for his presentation on international business.

Thank you, Mr. Baheti. We had another decent quarter in the international business, largely driven by the API and RoW markets. The R&D expense was INR 148 crores, approximately 11% of sales. We filed 1 ANDA during the quarter. We also received 8 approvals in the quarter, including 2 tentative. We cumulatively have 137 ANDA approvals, which includes 18 tentative approvals. During the quarter, we launched 7 products, including asenapine and timolol, which were interesting opportunities. We plan to launch around 5 to 6 products in the fourth quarter as well. The International Formulations business grew by 3% to INR 683 crores for the quarter and 27% to INR 2,233 crores for 9 months. U.S. Generics degrew by 1% to INR 512 crores for the quarter and grew 21% to INR 1,689 crores for the 9 months. Ex U.S. Generics continued to grow by 14% to INR 171 crores for the quarter. And by almost 50% to INR 544 crores for the 9 months. API business also grew by 21% to INR 214 crores for the quarter and by 34% to INR 741 crores for the 9 months. And now I invite Shaunak to share some insights on the India branded business.

Yes. Good afternoon, everyone. So the India branded business on the back of some recovery in the market along with a better operational performance. We did manage to show a 14% growth for the quarter and a 5% growth cumulation for 9 months of the financial year. Largely, the growth in this quarter was driven by our focused specialty segments, which is 15% growth in cardiology, 19% growth in gynecology, 19% growth in gastro and 30% growth in diabetology, which is a continuation of the performance that we saw in Q2 also. In antibiotics on a flat market, we did manage to clock in at positive 3% growth on the antibiotic side. And on the cough and cold side, the market still continues to underperform, and we continue to underperform along with the market in Q3. Now in terms of new launches, we had 2 important launches in Q3, which was Dapagliflozin as well as rivaroxaban in the cardiology space -- cardio-diabeto space, which we feel going forward will give us a strong traction in the sales in the coming years. Within the portfolio, like I explained since the last quarter, the key focus trends for us were the ones which largely 2 were able -- were the ones that were able to drive this growth. And going forward, we expect this momentum to continue. On the acute side of things, especially cough and cold, we're eagerly awaiting some normalization of the market, which we expect that the vaccine will ought to happen in Q4. On the back of that, we're extremely confident that the kind of performance we've been able to pick up in the specialty side of things, we'll be able to demonstrate those in cough and cold as well as our antibiotics portfolio once market reaches to more normalization level -- normal levels in terms of overall growth numbers month-on-month. So that's all, I'd like to open the floor for Q&A, please.

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

So my question is on India business part. Just wanted to understand that better. So in most of the focused therapies, you have achieved good growth. But can you bit more discuss there like what is helping us? New launches is, of course, 1 big driver. But what other factors are leading to this kind of very strong growth for India market? That's my first question.

Yes. So on the Indian market, growth is more largely at the moment driven majority by the old products in our portfolio. The new launches are too new. And as you know, in India takes a couple of years in the cardio, diabeto, in the specialty space for the brands to really pick up large momentum. So yes, the new brands have contributed in a small way, but largely, it's the old brands. What has helped in driving this growth is, I think, the last 2 years of reorganizing a lot of trade practices, along with a lot of refocus and reorganizing our portfolio. I think like I've been saying since Q4 last financial year, that our business has -- and unfortunately, I think it was the pandemic, which kind of didn't allow us to show now as things are returning to normal, we're starting to see the benefits on the restructuring exercises we've done in the India portfolio, especially in the specialty side.

Okay. So still, the growth is largely driven by a pickup in the older brands, as you mentioned, and the contribution from new launches will take some time to reflect in the numbers, right?

To contribute large -- to contribute in a large way to the growth, yes, it will take 2 quarters still.

Okay. And last quarter, we had some benefits for azithromycin demand pickup. So I assume that is still continuing for this quarter, right?

No. So this quarter, the azithromycin benefit has tapered down. And if I could give you an overall number versus a degrowth of the overall antibiotic market, we could show a plus 3% growth on our antibiotic portfolio. Obviously, a large part of that was contributed to azithromycin growth, but we definitely see a more easing up of growth on the azithromycin side at the fag end of Q3, which we're seeing continuing into Q4.

Okay. And my second question is on the cost part. So on India business, how much of cost is back to pre-pandemic level because other operating costs, I think, despite pickup in operations, we saw a sequential decline in price?

So as far as cost is concerned, both the field activities now are almost at pre-COVID level. Same, the customer meeting and meeting in the field is full swing. Promo cost is back to normal. So we are back to normal almost.

So this -- it's like -- difference between third quarter and second quarter, we should understand that large difference is coming due to lumpiness in the R&D expense?

So that's a consolidated number, which is -- which factors in a lot, like in Q2, we had a larger R&D expense, which is little lower this time. But R&D is dependent on a lot of moving factors. But India business expenses are more or less in [ normal line ].

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

Am I audible?

Yes, sir.

Yes.

Just on the U.S. business side...

Excuse me, this is the operator. I'm sorry to interrupt. Mr. Tushar, your voices is feeble. We can't hear you.

Is it clear now?

If you are able to use your handset, please?

Is it any better now?

Yes, we can hear you now.

Yes. Just on the U.S. side, I would like to understand, given that there would be some delay in the inspection of the new facilities, so considering your earlier guidance of INR 450 crore expenses coming in FY '22, will that get pushed? That is my first question.

Yes. So as far as the expenses are concerned, the one that we -- the facility that we've done maximum filings from F3 that I think we've done about 5 to 7 filings already, there are some products which are in shortage. We've been discussing with the FDA. I'm hopeful that they will be here within the next quarter or 2. But let's see how it goes. No one knows what's happening in this world. And I'm hopeful that within the next 6 months, they should be here for an inspection. So the expenses will start hitting once we commercialize sales from that front.

Got you. And on the filings side, given that these new facilities are filing based were supposed to pick up. So when do we see that happening?

So we've already started -- see, okay, F4 is an extension of -- not extension, but it's oral solid, so we are not doing any new filings, per se, from F4. That will be the existing facility. We will move some site transfer products over there for additional capacity. In terms of F2, which is our oncology block, we've already done some filings. The injectables, we will do by the end of this year. And the injectable block, the general injectable, we've already done 5 to 7 filings, and that's when the FDA has given us a date as well, which has, of course, got pushed back because of COVID.

The next question is from the line of Charulata Gaidhani from Dalal & Broacha.

Yes. Congrats on the good set of numbers. My queries, if you could throw some more insight into the India business because India business growth has come across as [ continuous ] as well as acute is growing -- acute and chronic is doing well across the industries. There is 9% growth in acute and also in the Alembic health category. So can we consider this as a new quarterly base? And how do you see things going forward?

Could you just repeat your question, the voice was breaking. Have you heard her questions?

Yes. So -- no, you are right, Charulata, India business has done well, and I think for last few quarters, we have been explaining our strategy to revamp the India business, make it more sustainable, make it more profitable. And some of these efforts seems to be paying off. Going forward, yes, we are -- we remain quite confident of doing better than the market in most segments of our focus.

But the reason of this growth, is it that impact you have widened the reach or have you taken an increase in prices?

No, it's both. Actually, it's a recovery in the market and our operational efficiencies, both have combined to take us to disclosed number. Price increases and all those are, I mean, part of life for any pharma company. We still know there are a lot of restrictions on price increases, we do wherever there is a -- it is allowed by the law and the completion. But that's not an important factor. The important factor is the operational efficiencies and some recovery, of course, in the overall market.

Right. And my second question pertains to the U.S. U.S. has come down to around $17 million in the quarter. So do you see this going down further? Or you think this is the bottom?

So the U.S. business, as you know, our last quarter -- last 8 quarters or so have been quite exceptional in the U.S. business. This was largely, as the market knows, due to various reasons such as sartans and shortages...

Excuse me, this is the operator. Participants, the line for the management has dropped. We request you all to please stay connected while we reconnect the management. Ladies and gentlemen, thank you for patiently waiting. The line is reconnected. Sir, you may go ahead.

Yes. Thank you. So yes, the U.S. business, as I was saying, the last 8 quarters for the U.S. business have been quite exceptional. As everyone knows, there were a lot of shortages in the market and a lot of disruptions, which caused this fantastic growth for us. So quarter-on-quarter, it's tough to say. There's been some correction. As I mentioned in the last couple of calls, that the markets are stabilizing with the sartans. Moving forward, I don't want to say quarter-on-quarter, but we still stick to our guidance for 2, 3 years. We expect to be in by FY'24 closer to the $400-odd million in terms of U.S. sales.

The next question is from the line of Vishal Biraia from Aviva Insurance.

Pranav, so what would have caused a lower growth for the quarter in the U.S. Would it be pricing pressure on sartans or loss of market share or something that you can share?

Yes. So sartans is a big part of it. So yes, there was -- there is incremental competition in sartans. That is one of the reasons. And we lost some accounts. We didn't want to bid at the prices that were there. So we let go off some accounts in the sartans, that is predominantly the reason. As you know, the last -- as I mentioned, the last 8 quarters, there have been a lot of disruptions in the market. And there were a lot of opportunities, very high-priced opportunities, which are no -- I mean, which are very less now. But listen, if U.S. market keeps finding opportunities, so let's see how it goes.

Okay. So incrementally, as we see ahead in 4Q, so should it be similar to what we see -- means, what we saw in 4Q? Or should we see incremental deterioration? Any perspectives for the coming 2, 3 quarters?

It's very tough to give a guidance. But as I said, there's a lot of disruption. And if some disruptions happen, then it could be better. We've just recently launched some new products in December. So it's really a matter of what we get. I think and I expect it to be around similar, what I said, around about [ $70-odd million ] that I've been guiding for.

Okay. You guys are -- you were planning to launch some limited competition products in the U.S. launch?

We launched -- yes. We launched 2 in December -- I think 3 in December. One was asenapine, which was a day 1 launch. There were 3 other people in the market. The other one was a timolol where the sole exclusivity that we've got on that. So both are interesting opportunities. Apart from that, we also launched tavaborole, which is a derm product, which is an interesting product as well as Latisse, bimatoprost.

Okay. Okay. So overall, if you see the pricing pressure in U.S., like for the last -- first half of this financial year, we saw that the pricing pressure has reduced to low single digit. So does that scenario continue overall for the U.S. business?

So as I mentioned in the last call, we've seen a lot more people enter the market again. So it's 2 aspects of it. One is the disruptions that you see due to shortages, that has become less. So this does not give you scope for higher price, onetime-wise what we saw for the last 8 quarters. Whereas on the sartans, it's relatively stable. So I'm not as worried about going forward, it's verily more stable. So it will be easier to predict in the next couple of quarters, how it's going to move.

Okay. Okay. Even if I got you right, the overall scenario seems to be still be stable, would be at...

Yes. The overall scenario, our long-term, what we expect for the next 2 years or so, I'm pretty confident. I'm still very bullish on the U.S. market. Our facilities are ready. We're awaiting inspections, especially F3 injectable one where we already filed about 5, 7 products. I'm still quite bullish on the U.S. market.

Right. And just coming to the non-U.S. market, does growth this quarter could have been driven still by Europe because of the civilization issues getting resolved? Or would have been largely the new entries like [indiscernible] ramping up in Brazil?

So it's across the territories. There are 3 main territories that we are part of is Europe, Canada, Australia. And I think all 3 territories we saw a good focus on the supplies and those growth across the territories.

Okay. Okay. Okay. So -- and just one last question on the API side. The profitability on the API business continues to be as good as it was in 1H?

Yes. So the first half, we saw a lot more opportunities in API. The profitability still remains to stay good for us. As I've mentioned many times that we have always been more of a premium kind of a player and APIs and we like on the -- we only focus on the regulated markets per se. So pricing has been fine. Having said that, after the first half of the year, where there were a lot of disruptions from China, that has become less. And I think Chinese supplies are back in the market.

Okay. Okay. Okay. And on the pricing also for API, the pricing would have also reduced a bit because now the Chinese supplies are back?

Not for us. We're not seeing that.

Okay. Okay. So profitability for you would continue to be -- still be tentatively better?

Yes. So far, yes.

The next question is from the line of [ Rashmi Sancheti from [indiscernible] Research ].

Most of the questions have been answered. Just 2 things. On debt, current gross borrowing stands at INR 600 crores. So what is the outlook on that? Will there be a major repayment in FY '22 also? Or will it remain at the same level?

So the debt consists of largely the NCD, which will fall due in next year '22, '23, and will be paid in '22, '23.

Sir, how much would it come down?

So in next year, it doesn't come down. I mean, it will come down by INR 100 crores.

Okay, in FY '22. And sir, in FY '23?

Yes. It gets repaid, yes, fully.

Completely. Okay. And sir, on R&D part, in the earlier part of the year, you said that R&D would be roughly around INR 700 crores. And I think in the 9 months, we have done around the INR 475 crores. So is it something that we stick to our guidance or we believe that it would be lower than INR 700 crores?

So you're right. I think at the start of the year, we had said INR 700 crores. But as you know, first quarter was a little bit of a washout or a little lower R&D activity due to the lockdowns and stuff like that. So I think we will end up at about INR 630 crores to INR 650 crores or so for the year.

Okay, sir. And sir, lastly, on India business, if you could help us understand that whether there were any new launches? I mean, how many launches have we done in 9 months in both specialty and the acute segment?

In the last 5 months, we have launched 1 product in the acute side. And we've launched 1 -- 2 new products in the specialty side. We launched Bilastine which is the antihistamine product in the acute side of business, and we've launched Dapagliflozin in the cardio-diabeto space, along with rivaroxaban also in the cardio-diabeto space.

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

A couple of questions. One is that for the new launches that we had this quarter in the U.S., a couple of interesting opportunities that you referred to, so for what period during the quarter did we get the full benefit of those launches? Were there...

You're speaking about the India branded business?

No. They were launched in December itself, and I think in the latter half of December. So I think we only saw about 2, 3 weeks of sales at the most.

Okay. In that case, given that we've had fairly strong growth even in India, which is a higher gross margin contributor, the sequential decline in margins, although still healthy, falls to a fairly grim pricing action sequentially. So is it fair to say that this quarter, therefore, now represents the normalized level of sartan contribution and incremental deterioration from this piece, which you've been worried about for the last couple of quarters is hard to consume?

So I mean, I really do not understand because our margins have been pretty good and have been consistent, consistent and -- I mean, a few basis points here or there doesn't really matter, but the GC continues to be at around 75%. The EBITDA continues to be at around 30%, which is what we had...

I understand that, Mr. Baheti and full complements to you for achieving that. What I'm trying to understand is that this quarter, therefore, given the deterioration we have seen in the sartan contribution, is it the new base going forward therefore? Because I think clearly sequentially, the pricing action on the sartan side and U.S. seems to be not in line with the last 8, 9 quarters, something which we have been worried about given the sustainability. So that's what my question is.

Yes. So hopefully, I mean, in the foreseeable future, we should be able to retain our margins.

Okay. Okay. And the sartan contribution, therefore, this quarter is most likely the bottom, right?

Most likely is what, sorry, I didn't hear the last bit?

The bottom, the bottom, the trough.

Yes. I mean, I don't know is it trough or how much lower it can go, but I think, yes, it is what it is. So moving forward, the contribution from sartans is lower than what it was in the first half of the year.

So basically, Pranav, what I'm trying to understand is the vulnerability of the U.S. sales territory to any adverse competitive environment of the like that you referred to in your comments to the sartan picture. So you have a reasonable confidence that is not the case, right?

Yes. So as I mentioned earlier, somebody else asked, if you asked me about my -- moving forward, going to FY '23, FY '24, I say our internal estimates stay intact, we're still confident about the U.S. market. As regard to sartans, I also mentioned in the last 8 quarters, there have been a lot of disruptions in the market. So it stabilized quite a bit. So it's little more easier to predict now because there were lot of disruptions in the past, sort of onetime buy opportunities across the board. So that's what caused in the past. But I think moving forward, I think it's settled for now, in my opinion.

Congratulations for yet again, good quarter.

Thanks. Thanks.

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

Sir, 1 question related to Aleor JV. So if you could just give a detail of what the status currently we have there. So of the current approvals in this quarter, like 6 final approvals, how much was from Aleor? And are we making a breakeven at the bottom line at this level?

So I mean for Aleor, we started the commercial sales last year itself, you are aware about it. I mean, the sales in the overall context is very minuscule. We had a couple of approvals in the current basket of approvals for the quarter from Aleor basket as well, actually. Going ahead, I mean, when we have the critical basket, we have 30, 40 products approved. And when we start selling that in the market, we'll kind of see how the derma portfolio performs in the overall scheme of things. Right now, it is -- I mean, it's a limited number at this point in time.

So are we making losses there? And what would be the quantum of loss currently we're making on a quarterly basis?

So there is a loss at this moment that -- because in a line-by-line consolidation, it gets consolidated. You can get a feel of the losses based on the minority interest, which is getting disclosed in the annual report -- I mean in the financial results.

Okay. Okay. Right. Okay. And secondly, you see in presentation, you have 1 injectable approved. So is this a tentative approval or final approval?

I don't think we have an injectable approved as yet. It will be tentative. It won't be a commercialized.

Okay. And -- so this is from F3 facility, right?

It is from a CMO?

It is from [Technical Difficulty]

Yes. There's no CMO. We haven't launched that, that's right.

The next question is from the line of Abhishek Sharma from Jefferies.

Sir, I had a question on number license. We know that we are heading into PDUFA date for monotherapy for 2 indications with good data this year. What kind of milestone and royalty can be expected for Rhizen and thereby for Alembic in FY '22?

So I wish I had the answer. I mean that's a difficult question. The product is -- will be -- is already outlicensed to TGTX. So they will be doing the marketing. I am entitled to receive a high single-digit royalty on sales. So depending on the approval time and how they launch and what kind of market share they capture, the royalty will be dependent on that. Difficult for me to predict. But we are pretty hopeful of a good number.

And sir, milestone?

So milestone, also, I think once the product is launched, we would be eager for some more milestones.

And nothing on approval?

Now approval and launch will be almost simultaneous. So yes, on launch now, nothing on approval.

The next question is from the line of Gagan Thareja from Kotak.

Hello? Am I audible?

Yes.

My first question is around your India piece. If you could give -- to start with, give a ballpark idea of the contribution of sales from anti-infectives, gastro and cough and cold for Alembic?

So our numbers are given in the table in the Investor Presentation, which is part of our coverage.

Yes. Roughly, if you look at it acute to specialty is 40-60.

Okay. And you've launched dapagliflozin and rivaroxaban. These are products, quite a few others would have launched as well, these having on/off patent. And you are trying to push through into electronic therapies and building up there. But that's a strategy that I think a lot of your peers would also be following. Given that situation, how do you differentiate and manage to maintain the growth that we've seen in this quarter for the India piece?

Yes. So first of all, I don't think this is a one-off growth quarter because if you see, even in Q2, we had a 16% growth in the cardio business. Cash flow grew by 16% in Q2. And again in Q3, it continued, and we see this trend based on the numbers in the market. In regards to differentiation, I think the question is far more complicated. I think we can have a separate call if required to discuss it in detail, but if I have to start -- I think there are too many things we can talk about differentiation in terms of competitive peers. In terms of the new launches, I think we're extremely confident that we will be able to take good profit share in all the new cardio, diabeto launches. Partly, this is based on the fact that we've seen strong traction from our customers. We believe in our strategy. And we did a good justice to the norms to drive it. So, so far, what we're seeing is, I think we're set up well to take good advantage of this all the new launches despite the competition next year.

The second question is around in the QIP. You've been indicating that you've gone through a period of very heavy capacity building, which will now play out. And therefore, I would presume that you would be positioned for a very good healthy free cash flow generation, which could have been used for the debt repayment. And therefore, I was wondering what was the thought process for the QIP, even like you would get into a strong FCF generation mode already?

Sure. So I think a lot of discussions had happened in October, where the QIP was in August and in October results call, there was quite a -- this issue was discussed in quite a detail. Just to briefly reiterate, we believe we still have a lot of growth opportunities, particularly in the international markets and we'll continue to invest. So we are just taking a small pause. We wanted these facilities to be inspected, approved, new products sold out. And we already have on our drawing board further expansion plans. So we believe that QIP will derisk the entire balance sheet, and that will -- so there is an element of business risk and we didn't want to couple it with the financial risk, and that's always a prudent strategy. And I think always in the conservative organization, we have been very, very miser on equity dilution, and we very consciously did it. That actually demonstrates our confidence in the international business.

Okay. Third question is around the U.S. sales. If I have -- if I got it correct, you've been pointing out that on an average, 22 to 25 approvals is a possible base case scenario for you in U.S. in the coming years, which would mean that your entire pending pipeline could get monetized in 3 to 4 years. And the size of the pipeline at 118 pending, I presume, would be higher than the number of products you have in the market. Also, there would be better filings in terms of the quality, which would mean that ideally, you should be in a position to be 80% to a double of your current base by the time you monetize all of this. And you've also indicated last quarter that in -- by FY '24, you could be $400 million to $500 million. But now I think you're talking of around $400 million. Any reason for that...

I've always said, it is very tough to see on the generic side. So when I say guidance, it's not a guidance per se. I said that companies at the similar phase that we were in, the kind of filings and what they've done, what would be an internal target. Our internal guide will still be $400 million to $500 million, anywhere between that. That doesn't change.

Okay. And lastly, sir, between MEIS and the new cost that you'll incur with the new plants coming in next year, what could be the sustainable sort of a EBITDA margin profile for you?

So they will go hand in hand commercially and definitely -- a bit of time lag, but otherwise, they will go hand in hand. So once I have the new plants inspected, approved, the commercial production rolled out of that, yes, the overheads will start hitting the P&L, but so will be the revenue generated out of those plants. Now I've always said that 30% of the larger sales volume is an ambitious EBITDA margin, may come down a bit. But I think in absolute terms, the business will be significantly bigger at that time.

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

Mr. Baheti, one question on the India market. You mentioned that 3/4 activity is fully back at the forward level. Just one question on the promotional spend as well. My understanding was that, that is the last quarter. I'm not very updated what's happened in this quarter. On the conferences side, at least for the doctors, everything was digital so far. So what's the update there? Is that still digital and that part is not yet back?

So we had -- I mean Shaunak has been saying consistently, we had moved away from those CRM and those conference-sponsoring activity a long time back. Most of our promo activities are now sign-centric or in-clinic support center. So -- and we have already taken a beating sometime back due to that, but we thought that being compliant in letter and spirit is always going to be sustainable. So I mean that has not really impacted our P&L if you ask me.

So would you say that your India level margins are now very similar to what you were doing at pre-COVID? They are not at elevated levels as were for the US in the first 6 months of this year?

So now they are at pre-COVID levels.

The next question is from the line of Nitin Agarwal from DAM Capital.

Mr. Baheti, is there any more -- when we are looking at the CapEx plan for the next couple of years, how should we look at -- should we think about CapEx now?

So I think during our '20 or post '20 interaction, I had already said that there are plans to add a couple of more injectable lines on F3 once we have -- once we have this inspection and approvals in place. So we had created an infrastructure which is a little larger than what we have populated currently. We have populated 3 lines, and it can take 3 -- 2 to 3 more lines. We have already initiated, what do I say, the concept paper for installing 2 more lines going ahead.

Sir, what kind of...

Sorry, in addition to that, we are -- we said we are already making more investments in API, now that the government has come out with a little liberal guidelines for granting environment and other approvals. And API had been underinvested, if I can say so in the last couple of years, we are stepping up our investments on API. So these 2 areas will take some investments going forward.

Sir, is there any amounts which are sort of earmarked towards these 2 -- towards API and injectable CapEx going forward? Any...

So I think going forward, excluding the normal maintenance CapEx, we should be spending about INR 400 crores to INR 500 crores in the next 1.5 years, 2 years.

That's INR 400 crores, INR 500 crores for each, right?

No, both together.

Across the injectable and the API business?

These 2 are new initiatives. And then there are about INR 250 crores, INR 300 crores of annual maintenance CapEx. That would continue. That includes R&D also.

Sir, broadly speaking about INR 1,000 crores of CapEx over the next 2 years, right, including maintenance and growth?

Yes, you are right.

And sir, on the other emerging market businesses, and that sort of scaled up very nicely in this 9 months. And Shaunak, in this, what is this business of -- so how should we look at this business now incrementally going forward? Because it is a reasonable size business for us, at about almost INR 800 crores per annum, almost $100 business, which is amongst the larger emerging market businesses amongst the peer group also?

So we are not -- yes, Nitin, we are not in emerging markets. What we call ROW markets are all regulated markets. The largest part of it is Europe and followed by Canada, Australia and so on.

Okay. And this is largely, sir, a reflection of a U.S....

How we look at it is the India market, U.S. and ex U.S., ROW, but all of them are regulated markets.

Okay. So it's the likes of Canada and EU largely, those kind of markets?

Yes.

The next question is from the line of Ayush Mittal from Mittal Analytics.

Sir, in reference to your earlier update about the U.S. -- pending U.S. FDA inspection for the new plants, I wanted to understand more about it. Like, if the inspection is to happen in a quarter or 2, by when do you expect to get on to commercialization and perhaps attain optimum utilization?

So what will happen is because there are some products which are in shortage and which are waiting, there is no patent expiry on that. So those will start -- get launched right away. So right after the inspection, I expect that -- as we get the go ahead, they will give the ANDA approval as well. In terms of capacity utilization, full, that will take a while because there's 3 lines, and they're going to add more lines as well. So that will take a while. But the plant will start contributing once we start commercializing these products.

Yes. By optimum utilization, what I mean is that broadly good enough to cover the additional cost and -- of depreciation and manpower and so many other things that have been pending to be expensed.

Right up to predicted, I would say right now, and I can't really give a guidance on that. So I'm sorry.

And also, given COVID, is there -- you see that it is reasonable to expect this inspection to happen in a quarter or 2? Or they can be more delays? Are you seeing the USFDA inspection in these times?

So the -- so far, they're not inspecting, but we've been talking to them, and that's why I'm kind of hopeful that within the next 2 quarters, they may come and inspect because there's some products which are in shortage. But so far U.S. -- the FDA hasn't been coming and inspecting.

Okay. And you plan to keep doing more filings till then?

Absolutely. Absolutely, yes.

Okay. Sir, there's always one accounting issue that comes in respect to this expansion that given that if approval has been so delayed, why our people are operating there. So shouldn't the company take a more prudent approach in charge of the operational expenses going forward even before we get the full go ahead from USFDA?

There are 2 aspects, one is -- and both are related to accounting standard. So an accounting standard says that unless -- I mean, you need to capitalize expenses till the commercial use is started. But you are aware that there is another standard which also requires company to test for impairment. And we and the auditors keep testing for impairment, and we still believe that the expenses which are loaded to the capitalization would still meet its financial goal. So we don't need any impairment. So I think -- I mean, so far, we are good.

No, because in the ANDA Committee, there's a lot of concern because of this part that as the plant has been put up, people are there. So there's definitely a lot of expenses and depreciation to things, machinery and everything happening just because it is out there. And you are doing filings and all those things. So isn't it prudent to have some charge to the P&L?

So Ayush, what we are doing is we're not capitalizing every expense, okay? So all the trials that we do, machine trials, we do, I mean, strictly, which can be capitalized are the ones which are getting capitalized. The batches that we take, I mean, scale-up batches, the exhibit batches, all of those things we do are all getting expenses, R&D expenditure, okay? Now come to the administration portion of the entire plant actually. That is also getting expensed out. So the one which does get capitalized is the core thing which is useful for building the capacity, I mean, building the manufacturing facility. That is only getting capitalized, okay?

That's really good to know, Mitanshu because if you go to civil forums, I think there's a lot of debate on these issues. And if there's more clarity, if you can quantify on some numbers or something that we are expensing so much of expense which is towards new initiatives, that will help analysts understand the company better. That's the feedback from my side.

Ayush, again, not getting into the numbers, conceptually, we could talk about it, and we can take this offline. I'll give you greater flavor on this.

Okay. The second question I have is, Pranav sir, you had mentioned -- which other analyst had also asked earlier that our ambition from the U.S. business is to scale up to $400 million, $500 million. And now as we are already a $70 million stable revenue, which is almost $280 million, $300 million number, given that we are doing such a large CapEx towards the U.S., shouldn't our revenue 3, 4 years down the line, much higher -- the aim should be much higher? If not, why?

So it's a continuous process. So when…

Because you're building these facilities for a long period of time, right? So I'll explain. So the injectable facility that we built, that's got ophthalmic, it's got prefilled syringes and vials. And we will keep building that as we go along. We'll keep adding more products to it. So revenue will continue to ramp. In -- by FY '24, we'll get to $400 million, $500 million. We won't stop that. It will continue growing after that as well. And also there's a time line, right, because we're filing, let's say, about 10 to 12 ANDAs that we expect to file from this new facility F3. From the oncology, these are a little more back-ended in terms of approvals because they're all under patents. But most of them all [ P-IVs ] from the oncology facility. So that's what the combination. And it's just a start, and then we'll, of course, keep ramping up from then onwards as well.

Yes. So that's what I was trying to get that as we are moving up the value chain where we are trying to do more complex things around injectables, onco, derma, so logically, the pathway should be much higher, the aim should be much higher as we go forward. And we can do more of brownfield CapEx also if we get success.

Yes. I mean the business has to keep growing. At some point, we have to keep adding new products and more complex funds.

Okay. Okay. Sir, 1 more question. The R&D spend that we do today is quite high when we compare to any of our peers. Going forward, do you think this will continue to grow as a percentage? Or will this taper down as our revenues scale up from new expansion that we're going to take.

We've got asked this question in the past as well. I think what will happen is as an absolute amount, it will continue growing. But as a percentage, once these new facilities are commercialized, you'll start seeing it come down.

Okay. And will that come down to 7%, 8%? Is that a reasonable assumption?

I would say about 9% to 10%, at least.

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

I just wanted to know, you mentioned that we have launched asenapine. Can you let us know what is the likely competition because, I guess, this is a product which is settled? So is there a difference in launches between other players?

So I think in the market from last, I remember, there's about 3 other people apart from us. There's authorized generic as well as 2 additional competitors in the market. It's a decent product, which has got pushed back because of the patent. But we've launched, we've picked up some market share. We'll get more clarity in the next couple of months, how the market settles down.

Okay. And we've launched -- what I understand, we have launched 2 dosage forms versus 3. So I mean, is that -- does that 2 capture majority of the market? Or how is it?

So there's 2 strengths of the formulation. Yes, that's majority of the market.

That's majority of the market, okay. And any color on the other opportunities that you mentioned, timolol gel which are also...

Timolol is also an interesting opportunity. There's the innovator in the market as well as us. And I think Sandoz has a different form, but we have the sole exclusivity on it. And also, I believe there are supply shortages in the market. So it's looking interesting right now. Let's see, next couple of months how it develops.

So are we the only player right now because of shortages?

So I think -- I'm not sure. I think the innovator and Sandoz are supplying some quantities as well, maybe not full quantities, but they are there in the market.

Practically, you are the only candidate.

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

Sir, my question is on R&D. I'm sorry, I joined a little late, but what is the R&D spend we're planning to do for fiscal '22 and '23? Any rough ballpark percentage of sales would help.

So in terms of absolute amount, somebody asked earlier, but I'll just repeat it since you weren't there. We'll end up the year below INR 650 crores for R&D because the first quarter was a little slower due to COVID. As regards to next year, I expect R&D to be anywhere between INR 700 crores to INR 750 crores.

Okay. And the momentum can continue, given you have 200-plus products in the grid and you want to file 20, 25. Do you anticipate the year after it would taper a bit or it would be at this level?

I think it will be at this level itself. Absolute amount will gradually keep increasing because we will also start doing a little more specialty and more complex products. But as a percentage, once the new facilities are commercialized, we see revenue from them, that will come down.

Perfect. Great. And second one is on the EBITDA margin. So as Mr. Baheti said that the expense side of promotions and all are back to normal pre-COVID levels. And you also mentioned that sartan has seen some competition. Despite that, we were able to do 27% kind of -- 27%, 28% kind of core margins ex other income. So just wanted to understand how sustainable are these given both these tailwinds. In spite of that factoring in, you were able to do 27%, 28%. Are these sustainable for next year as well?

So we have not given the next year margin guidance. We have given an overall guidance. I think we should be good for that. I mean, you can do a bit of back-calculation on it. The margins are okay. It looks within reach.

Yes. Because if I do that calculation, then we -- I mean, either...

So a few factors are additional costs, which will come with the new plants, come down the mid year.

That is a function of post-inspection once you commercialize in the second half?

Absolutely. Otherwise, it stays in this range.

The next question is from the line of Yash Gupta from Angel Broking.

My first question is on API. As the Chinese player -- Chinese competition are back in the business, so how this pricing will be volatile in the next couple of months?

So as I've said historically in the past that we don't really compete as much with the Chinese because we supply only to the regulated markets. And increasingly, even pre-COVID, there was a lot of -- we saw a lot of action of people having alternate sources from China in terms of intermediates and the regulatory approvals and inspections. So having said that, yes, Chinese are back in the market. I think demand will slow a little bit compared to what it was, but I don't expect pricing to be hit as such.

Okay. Second question is on the sartan business. Can you give some sales number for the sartan Q2 FY '21 -- Q3 FY '21?

Sorry, as you know we don't give product-wise breakup of our sales.

Okay. So just wanted to understand whether the dip of -- or degrowth of 1% in the U.S. business is just because of the sartan or is there any other things are also involved in this?

Just sartans.

The next question is from the line of Abhishek Sharma from Jefferies.

Sir, just on sartans, wanted some color, since you sell a basket of sartan products in the U.S. So is there any specific sartan which is getting impacted like only sartan or sartans all across? And secondly, is the pressure more on the price side or the volume side?

Yes. So I'll explain, actually, it's very interesting because last year -- over the last 8 quarters, what we've seen is we saw opportunities across the board in various sartans, which were short term -- some were short term, some were long term, some were onetime buys. So all that together caused is what led to a lot of growth. What we're seeing right now is there was one sartan particular where we let go of the business on pricing front. We didn't want to be in that. And that has caused some of the sales. Rest, I think, by and large, most of the sartans are stable in the single-digit price decline type -- more or less single-digit price decline, yes.

And the volumes are intact on all other sartans, as such the pricing is?

Yes, absolutely.

And if you would like to point out, which sartan is it that where you had decline business?

I don't want to say, but if you see market shares, you will see which one it is.

Ladies and gentlemen, we'll take the last question from the line of Ranvir Singh from Sunidhi Securities.

My question is related to Rhizen Pharma. So in Rhizen Pharma, this quarter, we have income, which is reflected there in the results. So is this a part of milestone payment we are receiving? Or this is a recurring type of profits we are gaining?

This is a milestone.

And so any like -- we had a total deal size of $150 million. So that is -- any visibility on it? Or what kind of milestone, we can get in either '21 or '22?

So I responded a bit earlier. Deal size will always consist of a few things. One in the milestone on various -- reaching various obviously miles -- milestones. The second is royalty which we'll get on the sales. And the third is the manufacturing rights. So size will consist of these 3 things. Going forward, milestone will be only on the product launch. And then subsequently, the royalty and the manufacturing rights will kick in.

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

Thanks. Thanks everyone for attending the call. As always, it's very interesting, and pleasure talking to all of you. [indiscernible] and we'll keep iterating if any of you have any questions, please drop a mail to Ajay or Mitanshu, we'll be happy to respond to you. And look forward to seeing you again next quarter, hopefully in a better situation. Thank you all. Good evening. Have a safe day, safe rest of the year.

Thank you very much, sir. Ladies and gentlemen, on behalf of Alembic Pharmaceuticals Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.