Alkem Laboratories Limited (ALKEM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY '21 Earnings Conference Call of Alkem Laboratories Limited, hosted by Motilal Oswal Financial Services. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Tushar Manudhane from Motilal Oswal Financial Services. Thank you, and over to you, sir.

Thanks, Margaret. Welcome to Q4 FY '20 1 Earnings Call of Alkem Laboratories. From the management side, we have Mr. Sandeep Singh, Managing Director; Mr. Rajesh Dubey, Chief Financial Officer; Mr. Amit Ghare, President, International Business; Mr. Yogesh Kaushal, President, Chronic Division; and Mr. Gagan Borana from Investor Relations. Over to you, Gagan, for the opening remarks.

Thank you, Tushar. Good evening, everybody, and thank you for taking out time and joining us for Q4 and full year FY '21 earnings call. Earlier during the day, we have released our financial results, and the same is also posted on our website. To discuss the business performance and outlook going forward, we have on this call, the senior management team of Alkem. Before I proceed with this call, I would like to remind everybody that the call is being recorded, and the transcript will be made available on our website as well. I would also like to add that today's discussion may include forward-looking statements and the same must be viewed in conjunction with the risks that our business faces. At the end of this call, if any of your queries remain unanswered, please feel free to get in touch with me. With this, I would like to hand over the call to Mr. Sandeep Singh to present the key highlights of the quarter and the year gone by and our strategy going forward. Over to you, sir.

Thank you, Gagan. Yes, good evening, everyone. I'm I audible?

Yes, you are audible.

Okay. Wonderful. So good evening, everyone. Once again, welcome to our quarter 4 and full year FY '21 results conference call. I will briefly touch upon the key performance highlights of the quarter and the year gone by and then leave the floor open for question and answers. So FY '21 was a unprecedented year for everyone marked by disruptions and restrictions because of COVID-19 pandemic. For a pharmaceutical company like us and the industry likewise, FY '21 was a year of immense learnings, [indiscernible] various headwinds like manpower shortages, changes in demand or various drugs or limitation in carrying out marketing exercises. Among these challenges, company performed well in FY '21 with a revenue growth of 6% year-on-year. EBITDA margin improvement of more than 400 basis points and net profit growth of more than 40% year-on-year. We also ended the year with a healthy balance sheet and a net cash position of more than INR 500 crores. Talking about the India business, we registered a growth of 17.1% in the quarter and 4.5% in the full year. In the first half of the year, while the business faced significant pressure owing to lockdowns, [indiscernible] at the hospital OPDs and clinics and postponement of lockdown. So in February, there was a healthy recovery in second half of the year with the relaxation in lockdown guidelines. During the year, there was a severe slowdown in acute therapies, particularly [indiscernible] segment due to slowdown in new prescription generations and heightened focus on cost in [indiscernible]. Usage of masks and sanitizers also helped to bring down the infection rate. Because of a significant bearing on the company's domestic business, we derived more than 80% of revenue from acute therapies in domestic. And anti-infectives contributes close to 40%. However, robust growth in segments like [indiscernible] trade generics helped us offset the pressure of the acute business to some extent. Most of our mega brands continue to outperform in their respective markets, thereby we maintained our leading position. Last month, we commercialized our first product from a biosimilar [indiscernible] subsidiary in [indiscernible], and we are looking forward to more launches over the next few years. Moving on international business, [indiscernible] on two international business, which now contributes about INR 1 crore of our overall revenue. During the year, international business grew by 10.6% year-on-year and crossed a revenue of INR 3,000 crores. This was largely driven by our U.S. business, which grew by 11.4% in the fiscal year gone by. During the year, we signed 9 ANDAs with the U.S. FDA, of which is 25 approved, including 6 [indiscernible] approvals. This bodes goes well for the future growth in U.S. marked -- U.S. market, which has largely been driven by new product launches. Apart from U.S., among the other international markets, [indiscernible] registered healthy growth during the year. We continue to [indiscernible] invest in R&D, which is an important pillar of our growth. During the year, we invested about INR 532 crores in R&D, which is about 13% higher than last year. We now have 152 products, 5 [indiscernible] FDA, of which we have received 110 approvals, including [ 16 ] countries approvals. In terms of regulatory status of the marketing of our manufacturing facility, all our 6 manufacturing facilities applying to the U.S. market have an EIR [indiscernible] on date. Only manufacturing facility at Indore with a rating 3-A of [indiscernible] inspection by the U.S. FDA. We continue to invest in our people, in technologies so that the insured facilities comply to global regulatory, CGMP standards. With this, I would like to open the floor for Q&A. Thank you, everyone.

[Operator Instructions] The first question is from the line of Saion Mukherjee from Nomura.

I just wanted to understand the drop in gross margins during the quarter. Can you just explain what led to that? And also the fall in U.S. revenues on a quarter-on-quarter basis?

Yes. Mr. Dubey, you can take the first question. And then Amit Ghare can answer on U.S.

Yes. In just -- in our -- this quarter's gross margin, there is impact of one, I should not say exceptional, but extraordinary item that is inventory provision to the extent of INR 80 crores for 1 of our product in USA -- mainly 1 of our product in USA. So that quantum is around INR 80 crores. And that's the reason why gross margin will improve [indiscernible] for the quarter as well as having some impact for on yearly basis also.

And sir, any particular reason why these charges come? I mean, you said it's not one-off. I mean, how should we think about it? If you can give some more color on the reasons for these charges?

Sure, Saion. Saion, actually, as per our policy, any inventory having self life less than 6 months needs to be provided, that is as far as past history. But wherever we see, we are not in position to realize complete amount of that inventory or is having an RV pressure. In that case, it is prudent to have correct inventory on your balance sheet. And you have to go ahead and provide for whatever amount you feel [indiscernible] realizable. So this product, having self life between 6 months to 12 months. We strongly believe we'll not be in position to realize completely, and that's the reason why we have gone ahead and provided for it. If any realization happens, which at this point of time, we see -- not very easy. But if something happens, then it will go to our bottom line.

Okay. Okay. And sir, the U.S. revenues dip on a quarter-on-quarter basis?

Over to you, Sandeep.

Yes, Amit, would you want to comment on it? On U.S. business?

Yes, I'm here. Saion, so we grew about 10% year-on-year on quarter 4, '21 over quarter 4, '20. And a couple of reasons for that. First and foremost on the strongest reasons perhaps has been a decline in our overall achieved portfolio for the U.S. market because of COVID. So essentially, all our winter season products we generally have -- we always had strong Q3 and Q4. This year, we did not witness it. On the other hand, we actually had growth in that. So that has been one of the primary reasons. Second reason has been maybe some loss of market share on some of the products on a year-on-year basis, yearly, I'm comparing. And third reason has been perhaps less number of products for sale and in launching of new products in the quarter compared to last year. Also remember last year when COVID broke out, particularly in the month of March 2020, there has been a little bit of panic [indiscernible] we have seen some onetime sales, which came in Q4, which obviously got adjusted during the entire fiscal year. But when we purely compare quarter 4 over quarter 4, there is an impact because of that on that. So these are 3 or 4 main reasons that we've witnessed a year-on-year decline.

The next question is from the line of Neha Manpuria from JPMorgan.

Amit, just a follow-up on the U.S. business. Given you had 25 approvals, if I heard correctly, during the year. I'm not able to understand the quarter-on-quarter decline in the revenue. Was there any product where we significantly lost market share from pricing erosion? And -- or is there any product that we haven't launched from the 25 approvals which can come through in the next year?

Sandeep, do you want to answer that? Or do you want you to take that up.

No, Amit go ahead. Amit, please go ahead.

Right. Neha. We haven't -- I mean, the primary reason, as I said, I gave, I think, 4 reasons. And the first one, obviously, is a large part of the reason. A collective portfolio that we have for our winter season, leading with [ benzonatate ] and of course, with many other anti-infectives and some pain...

Amit, I'm looking at it quarter-on-quarter.

Yes, quarter-on-quarter. So winter season product, winter season generally starts buying from retailers when we start around October, October, November and last until February. So the 2 months of January and February, which is part of the winter season. This year, our sales hugely declined compared to last year. And that is one of the primary reasons, including the other couple of regions I gave. And specifically on your question with respect to new launches, as I mentioned to you, we haven't launched all the [indiscernible] that we received approvals on. In fact, it were [indiscernible]. So obviously, those are not launched. Of the remaining 19 and of some of the other products that we had received approval in the previous fiscal year, all of them were available for launch. And only some of them were launched. In fact, about less than 50% of those were launched in the entire fiscal year. So there has been a little bit of back ending in terms of the new launches as well.

So just to get it right, less than 50% of the 19 approvals that we got has been launched and the rest would be launched in the next fiscal, is that correct?

That's correct. So we actually have launched about 12 products, if I remember, during the entire fiscal year. And I don't exactly remember, this all 12 were part of that 19 or there was something which was in the previous fiscal year, which also was launched.

Okay. And sir, [indiscernible], you usually mention about 8 to 10 launches per year. So then should I assume that the launch momentum will be higher because of these products spilling over from FY '21?

Definitely, yes. We are looking for certainly double-digit number of launches during this fiscal year.

Understood. And on the India business, could you throw some color on how the India business is doing, particularly if you may have we seen some impact on the recovery that was happening? Or is this second wave very different from what happened last time in the ether lockdown and increasing COVID?

Sandeep should I answer?

Yes. What I'll do is just start off this and then you can talk more. Otherwise, I'll be answering no questions, then we wonder I was here. But okay. Anyway, so Neha your question is more going to be in quarter 4 or what's happening currently right now?

Sorry, [indiscernible] recovery that we saw in fourth quarter, like you mentioned in the second half, has that [indiscernible] out in April and May because of the second wave? [indiscernible]

I understood now. Yes. So Neha, yes. So that's what I was asking that question, there's more for what's happening currently, not so much of quarter 4, which we are discussing. So I think as you are aware, the IMS numbers, which we have seen, we have seen a huge growth in the [indiscernible] industry as such. In the second wave, what is very different is that in the first wave antibiotic sales has kind of collapsed, I can say. This time, it seems that doctors are using much more aggressive regimen to treat the drug because of let's say some pneumonia, acute pneumonia. And Yogesh can talk about it. I think there is a strong recovery for us. And for the industry in the last couple of months when it comes to [indiscernible] sales. Yogesh, you can please add some color to it?

Yes. I think Sandeep you answered absolutely perfect. Because last year, one is that people are confined to home, this time they are moving. So patients literally are there, and therefore, the infection rates are high. And in last year COVID, the secondary infection of pneumonia wasn't there, which is extremely high this year. So this is a different wave compared to the previous one. So the antibiotics have shown a very good revival. And of course, the allied therapies, which are parentals of asset management and vitamin Cs and multivitamin zinc preparation, they also have shown a very good increase. [indiscernible] we foresee quarter 1 should go much better compared to last year.

The next question is from the line of Aditya [indiscernible] from Bernstein Research.

My question is actually on the sales and marketing expenses in India. Of course, Q1 and Q2 were extraordinary quarters where you mentioned a lot of savings. But if you can talk to us about Q4, was Q4 largely a normal quarter in terms of how much is it normally spent on the ground? And what is your outlook for the Q1 now and the rest of the year in terms of the change in marketing expense in India?

Yogesh you can go ahead, Yogesh. And give some color on this please. Yogesh?

Yes, yes, Sandeep, yes. So see, last quarter, quarter 4, I would say that our marketing spend was normal or a little higher because we were preparing for our first quarter. So last quarter, quarter 4, our -- we intentionally, we took a little high-strength to prepare for quarter 1. April, I believe, has gone almost normal. So our investment, even in the month also was quite okay. May, we are seeing slight sluggishness in marketing activities. But the way the cases are repeating, I think from mid-June or July onwards, we should be back to the normal in terms of marketing spend.

Understood. In some of the previous calls, you have spoken about some savings that you might realize, which could prove to be sticky. So in terms of that, are you seeing anything that you're able to realize and keep control over, now that we are in FY '22?

Yes. So see, other than our in-clinic activities, which constitute close to around 60% to 65% for spend, the rest, which is related to conferences or CMEs, they all will become virtual. So those savings we foresee. And the way the trend is, unlikely that doctors or people will start traveling to the international or domestic destinations. So they will go virtual, and that will certainly get some savings to us.

Understood. One quick one on trade generic. If you can show color on -- did you see, again, the market saw some revival in Q4? What impact did it have on your trade generic business and the growth there? And again, now that we are in wave two, any changes you in to the mix of [indiscernible] contribution?

No, I think the mix has [indiscernible] not changed dramatically in the last couple of months. For us, mix is the same. In fact, the mix would have slightly gone down for trade generics because of the strong revival and acute prescription business. Quarter 4, I think is [indiscernible] discussion, trade generics was close to around 20% of our revenue, of the metric.

The next question is from the line of Rashmi [ Sancheti ] from Intra Capital.

A little more on India business. How are we seeing the hospital portfolio? I mean I understand that the subscription product in the active segment and the seasonal sales is something which would support the growth in near term. But the elective surgeries and everything is still getting postponing in the hospital due to the COVID surge. So how do we see our antibiotic or anti-infectives [indiscernible], especially catering to the hospital therapy?

Yogesh, you want to take that. Yogesh?

Yes, Sandeep, yes, yes. So see, hospital elective surgeries will still take time. I don't see, at least for next 1 quarter more, unless until their emergencies, they will go for the surgeries. But incidentally, the OPD patients are very high. So whatever gap we had because of hospital business, is almost getting offset because of very high OPD patients. So our anti-infectives in orals and [indiscernible] in parental, there, we are almost on, so we are not suffering. Some of our antibiotic injections may have some challenge, but that will be offset by the other therapies, which are helping us or supporting us.

Okay. And can you give the contribution like how much domestic sales comes from this part of the segment? I mean, if you can give in a normalized business level.

Difficult to give this.

We'll come back on that. Gagan will send the information for hospitals in the core business, for sure.

Sure.

Okay. So how do we see the India business going ahead for FY '22 in terms of growth?

Sorry, I missed your question. Can you repeat, please. I didn't hear you well.

I'm saying that any guidance on India business for FY '22?

So I think the guidance is kind of -- virtually on the same guidance, there is a new kind of mid-teens. So I think we will stick to that. Maybe it is -- I mean, sales are as high as what's been April and May, then maybe we'll do at a higher brand of that, but our guidance has not changed now. Thank you.

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

My question is on the strong cash flow that we have seen in this year. So how do we plan to use the cash as well as how should we look next year?

Yes, Prakash, your question is basically to be more specific. I mean, you mean to say on a dividend policy, you mean or CapEx, like what exactly you want to know?

Yes, I mean, Capex, dividend policy and some M&A in the works or anything that we are thinking over the next 12, 24 months?

Okay. So Prakash, Nothing has changed, this question is asked to us, and we always keep saying the same thing. So nothing has changed. We will have some cash uplift and [indiscernible], obviously, but we stick to our dividend policy, there's nothing new changes in CapEx plans nor as a company, we have any large M&A plans that's not in our DNA. So steady as it goes, in [indiscernible] we really think we have a problem of plenty of cash. We will obviously discuss a few things before that and kind of [indiscernible], but nothing changes right now, Prakash.

Okay. No. The question why I asked is we have seen some inventory moving up quite a bit. And in the past, you have said, given COVID, you are keeping higher inventory and all, but I hope this will reverse in the next 6 months. So you will...

I think it should.

Yes, yes. So that and plus India outlook being mid-teens. So you would have a much stronger cash flow is what I understand in '22 versus last year also.

Right. Yes.

Okay.

Yes, Prakash.

Okay, understood. And...

Cash is a good thing to have.

Yes, yes, it is. So I was just asking like if there is any plans for use of cash. Secondly, on U.S. pipeline. So when we think of pipeline, we are seeing gradual increase in your R&D as well. So where is our thought process in terms of -- what are the kind of products we should see in the next 12, 24 months? Are there [indiscernible] products, CGT products, FTS? Any color would help.

Sure. Amit, do you want to take that, Amit?

Yes, I can answer that. Prakash so it's actually going to be much of a same our focus continues to be obviously [indiscernible]. So you're going to see more of that. And we, of course, at the same time, do work on oral liquids and powders and some semi solids as well. So there is work happening on all the fronts. But there's really nothing that I can guide for future in terms of what we are working on.

But potentially, there could be some [indiscernible] or something like that Prakash. We are not very sure so to say that it will happen, might be a little book of [indiscernible] statement Prakash. But we have the [indiscernible], we could do it [indiscernible] right now Prakash.

Okay. And lastly, on the margin outlook, since we have a positive outlook on the India business and the mix would improve. I understand that. So our gross margin and the EBITDA margin should improve even on the high base of last year? Or with cost increasing, it should stabilize at that level? What is the outlook this?

I think that's a great question, Prakash. So you're right. Please keep in mind that the gross margin will be impacted one because of the [indiscernible] the mix would change compared to last year. The ratio. And also your API [indiscernible] in the last few months. We don't know how much that will sustain and what would happen. So I would say that we could factor in 100 basis points of impact on gross margins. By and large, we obviously can't predict we do know very well, but that's what's going to happen, we think. And so Dubey if you have some color on it, please, Mr. Dubey feel free to add.

Yes. No, sir, you have covered it very well. So same thing, even though our business mix, it may be favorable Prakash, but API prices -- and not only API even packaging material also. So we see a lot of material prices, it has gone multifold. Substantially, it has increased, I need to say. And obviously, the impact of that is going to be there on our gross margin of next year. And as Managing Director, he rightly said, we foresee 100 and 150 point kind of impact there. But we stick to our guidance on EBITDA margin, we'll ensure that. And we are very optimistic. This is not going to last for very longer time. But we'll manage our EBITDA margin, we are going to stick to our guidance.

What is the guidance, sir, if you can repeat?

Guidance of EBITDA margin, actually, if we are taking 20% as a base, then our guidance is to improve by 200 basis points. So 17.7%, if you recollect, it was our EBITDA margin in '20. So we'll be somewhere close to 19.5% or very close to 20%.

The next question is from the line of Ranvir Singh from [indiscernible] Securities.

I just wanted clarity on that INR 80 crore charge that we have taken in U.S. So for this quarter, U.S. business, is EBITDA positive? Or EBITDA has gone due to this provision?

Mr. Dubey, you can take that?

Yes. Thank you. Ranvir, after taking this charge of INR 80 crores for the quarter, I'm talking for the quarter, at EBITDA level, also, we see big pressure, and it is not in positive. But of course, on a yearly basis, it's quite comfortable.

Sir, normally, the U.S. business generates better-than-average EBITDA margin of company or this is lower or higher than the company's average?

Domestic business is having better EBITDA margin. But given U.S. business is also having reasonable EBITDA margin.

So it [indiscernible] below the company's EBITDA margin, very clearly?

Yes.

Yes. Okay. Okay. And secondly, on the India business. You commented marketing expenses or other expenses rather in this quarter were higher because we are preparing for next quarter. So that I wanted to understand. That means what you are saying that we have budgeted in this quarter for sales or promotions that would be used in next quarter of how that explains?

If you can just repeat your question like how do you -- talking about quarter 4 high, but what was your next statement after quarter 4.

No, you commented that other expenses is higher because you are preparing for next quarter, so I wanted to understand in better perspective, how -- what type of preparation normally we take for next quarter? Like the budget higher promotional expenses in this quarter. Or how it explains that?

So I'll ask Mr. Rajesh Dubey to answer. But before that, see, if you remember, our quarter 1 and quarter 2, marketing initiatives were lower, and we were not spending because of lockdown. So in quarter 3, we step-up in quarter 4, whatever our marketing activities, we step up to the highest in the month -- in the last quarter. So that we prepare for the next quarter, which is quarter 1. That was my answer. Anything specific you want to ask me here?

No, no, fine. Okay. I think what you want to -- what I understand is normally, the kind of incentive or marketing expenses, whatever is accumulated for Q1, Q2. Normally, you pay in Q4. That's what you want to say, so that the next 2, 3 quarters, again, that will be accumulated to be paid for that. That's what you're saying?

No, no. This was the only marketing activity, specific answer, not about [indiscernible].

Okay. Anyways. And next one on biosimilar, the product we launched, so how is things going there? What kind of -- for that particular product, what kind of revenue we can build for FY '22?

So to be honest, product-wise, we never talk about revenues as a policy. But the product which we've have launched in the peptide, and we already market this product from before. This was manufactured by somebody else in the marketing. So [indiscernible] are running products for us, but now [indiscernible]. So this is not something shocking for us, but is the beginning. So the first part is a peptide. But going forward, we'll have [indiscernible] anti bodies and things like that. So in terms of revenue, it might not move [indiscernible] this year [indiscernible].

Yes. Okay. Now earlier, you indicated that business that could go up to INR 2,000 crores in 4, 5 years. And that perspective, I wanted to understand this is the first one. So this is just a small product and we have a bigger product [indiscernible] course of time.

Yes, yes Of course, the pipeline will always be more than 1 product. So we do have that -- it will take a of time for other products to come in and for us to very -- move them easy. Substantially it will take time. So I'd say 5 years, this is the first month of that 5 year. And as you know, in biotech and in science [indiscernible] back ended. So this is going to be a very slow process. Most of all, we have seen the biosimilars journey of the large pharma companies. We'll be going through a lot of time, and we'll have to be patient and watch if it can't change quarter-to-quarter. Thank you.

The next question is from the line of [indiscernible] from [indiscernible] investments.

Hello regarding this guidance, you mentioned that the revenues or sales are likely to grow in mid-teens for the year. And the operating margin, you mentioned that around 20%. So this year, we had a operating margin of around 22%. So it will be lower by 2%?

Yes, 100% because that's what Mr. Dubey said that we have to compare with not last year, but last year, last year, because last year was an extraordinary year, once in 100 years, these things happened. There was 3 months of kind of complete lockdown in India. So obviously, there were a lot of exceptional savings which [indiscernible] agree on. So that's the reason.

And this inventory write off, which we took off of INR 80 crores in this quarter. So normally, these type of things also aberration or they keep on happening?

So this is a large one. This is happened maybe very rarely, first time is a large amount. So it's not -- I mean, inventory write-offs happen, but not such a big contract. [indiscernible] It's exceptional business-wise.

And...

[indiscernible] If you have anything to add, you could please add, Mr. Dubey?

No, sir. I think you have replied completely.

All right. Thank you, Yes?

Regarding our acute therapy, which is our main product line contributing to majorly to our profits, which currently is down due to COVID. And maybe, as you mentioned, the Q1 and Q2 also may witness some impacts on the surgeries, et cetera. But other anti-infectives and antibiotics, et cetera, you hope we will be able to grow overall in this quarter 1, quarter 2 also?

Surely, I think we well. Mr. Yogesh, do you want to kind of answer that?

Yes, Sandeep, just to add to what Sandeep, you said that. The antibiotics are almost back to normal. So so so may not be in the same indication, but because of very heavy pneumonia existing and then the secondary infection, if you see first 2 months trend, April and May, there's a very good traction in antibiotics. And we expect this to continue to at least for 2 to 3 months [indiscernible].

Sir, we hope too [indiscernible], which we are getting in our active therapies, because of lack of surgeries and postponement, will we be able to compensate for this -- with this -- the sales of anti-infectives and antibiotics?

That is exactly what I said that because of OPD increasing, so whatever loss traction we might get on a lower side from hospitals will certainly get offset from the OPD increase. And that is what we are witnessing in the last 2 months.

Okay. The financial management, we have done here really, very well. So it is nice to hear that we are net cash available with our INR 500 crores odd. So these long-term loans, which we are currently having, about INR 1,600 odd crores. So do we plan to repay them significantly because of the good cash accruals?

Yes, I'm taking this question. Actually, we don't have any long-term debt. We do have debt in form of in form of packing credit, mostly of ODs, and these are short-term loans. But we do have some midterm loan in our U.S. subsidiary, but that amount is only $7.5 million or $10 million kind of. So not beyond INR 75 crores. So yes, of course, that will be repaid wherever it is due for repayment. And we do have cash in our hands. And when we talk cash, we always talk net of debt. So what we have a figure, we are talking 500-plus that is net of all this debt, including short-term and long term. I think I'm able to reply to your question.

Because currently, this...

I'm sorry to interrupt you Mr. [indiscernible]. May I request you to rejoin the queue for follow-up questions. There are several others waiting for their turn as well. The next question is from the line of Ritesh [indiscernible] from Nippon India Mutual Fund.

Yes. Hi, everyone can you help me understand how -- what's this price erosion in the U.S. business, [indiscernible] last quarter? And what's the outlook on the pricing side on a like-for-like basis?

Mr. Amit Ghare you can take that, please?

Sure. It's probably in quarter 4 compared to last year, the price erosion has been in higher single digits. Price deflation.

And how is the outlook for next year? What are the conversations you are having with your customers since now, COVID is not like -- the supply chain sustainability and the fear of supply chain is out, as pricing has become main point of discussion with your customers? Would that be very severe in next stage?

So look, pricing is always important, and no customer is going to pay a premium generally. But the deflation, obviously, in quarter 4 and even quarter 3, so during the year, overall, if I say, was certainly higher than what we have witnessed in the past. Some of it maybe has to do with our product mix also, wherever we had our interfusion products because of the growth in the market itself, maybe it also witnessed higher price deflation. Overall, going forward, the deflation will always be there, but we hope that it is not going to be similar to FY '21.

Okay. So overall FY '21, it was in high single digits?

That's correct.

And maybe my second question, you gave some answer to the previous -- one of the question which was asked. So last 2 years has been strong cash generation and your CapEx has not been that high approximately the last 2 years, number is INR 500 crores and your operating cash flow INR 1,800 crores. On the next 3 to 5 years, beside areas of geographies which you invest. And would your cash generation -- what's the plan because your investment deployment may not be back very high. So if you can help us understand on that?

Amit do you want to take the question of international business [indiscernible]. And on cash, Mr. Dubey and myself will take it. Amit?

Sure. I thought the question was mainly on cash and CapEx. So maybe I'll just hand it over to...

Let me rephrase it.

I think if I didn't understand, I think you were asking what's your plan for other countries? And things like that. But if I didn't understand correctly, then yes. Okay.

Okay.

[indiscernible]

Look, for other countries, we are very focused we operate only in a few countries. And like we have mentioned in the past and we've seen overall as well, our growth mainly comes from 3 or 4 markets. This year, in our emerging markets, particularly the markets where we depend upon subscription generation has witnessed the [indiscernible] growth pretty much for the same reasons that our India business has grown significantly less than what we've grown in the past. And we certainly don't have that kind of muscle that muscle that we have in India in some of these other retailing markets. But going forward, we will continue focusing on our 3 geographies: Australia, Chile, Europe are 3 main geographies that we are focusing on. And a few more markets like Kazakhstan and Philippines [indiscernible] on the retailing side and the emerging market side. So those are the ones that we continue to [indiscernible].

Yes. My point was more on the -- which area with geography, which you'll invest in next 3 to 5 years, inspective of India or outside India as Alkem -- given the way we ramped up the U.S. in last 4 years, we have doubled the U.S. business, what would play out in the next 3 to 5 years, if you can just help us understand that?

Yes. So I think I can...

Sorry.

Sorry. Yes. No. I mean, sorry, the reason I was coming in because you asked India and U.S. and also overall. So I think we -- as we all know for India, our overall investments are kind of all ready done in terms of expansion of in-force for chronic, which was ahead of the curve and things like that. So India will not pick up that much of kind of capital renewals. And please keep in mind, when we say that we want to discuss for the countries, I think keeping -- bear in mind that U.S. itself, we have not kind of reach the potential. So just because it's good fun into our countries, I don't think so we should do that. I think we are still less than half of what we can do in U.S. So clearly, we'll keep -- continue to invest in U.S. and no other country that much. India and U.S. have a primary growth driver for us in the next 5 years. Where we could perhaps look at few things is with our product pipeline and things like that, like doing some biosimilars [indiscernible] markets, but that will also be a 4, 5 year deal. Amit, sorry, you go ahead, Amit. You were saying something, please add to it.

[indiscernible] absolutely bang on answered, and India and U.S. are our growth leaders and even during the full fiscal year, as you noticed, U.S. business has grown higher than our other markets, and that is pretty much the story for several previous fiscal years. And I guess the main growth in that will come from us as far as international business is concerned.

The next question is from the line of Kunal Randeria from Edelweiss.

So my first question is on your vitamins portfolio. So the growth has been very impressive this year. I'm sure, a large part of this growth could be because of the COVID crisis in India. So just wondering about the stickiness of this portfolio, once the COVID recedes, then do you expect pressure on this business? Or there's an element of stickiness here?

Dubey, you can take that one.

So see, post COVID the product mix we have is a very versatile in nature. So even as slight impact, if you see in the later half of the year on antibacterials, we have a very strong portfolio portfolio on acute front in vitamin D3, multivitamin, zinc preparation and Antacids. This is also now supported by a reasonably good portfolio on a chronic front, so which contributes close to Rome a 16% of the business. And on the quarter, it was 18%. So chronic should continue the growth and acute growth driver in assuming that later half of the year, the antibiotics may not show as robust growth as they are showing in the first half will be compensated by the other portfolio, which are there like, as I said, with a mean D3 and other preparations. So overall, the portfolio mix, it should drive the given guidance, I don't win to do a tool.

Okay, fair enough. I'm just wondering whether this business could potentially see some decline also because we have run 27% in FY '21. So once it recedes, I'm just thinking whether there will be a decline on portfolio.

Yes, that's what I said, some amount of rationalization will certainly happen because first quarter will see an extraordinary growth because of COVID. So whether it is antibiotics, whether it is vitamins, minerals, antacids, they all will show excellent growth in the first quarter. So April, May, June will go extraordinary. And then it will settle to a normal growth. Normally, the industry grows at around 9.5% to 10%. So we expect industry to grow at a similar rate in the balance 8 to 9 months of the year.

Sure. My second question is on [indiscernible]. I think you were the only company with tentative approval also well in the district court. Is -- do you expect to launch this product this year and the kind of competition you expect in this product?

Yes, Amit, you can take that separate question on it, you can go ahead.

Okay. As we responded in the last quarter, the brand has obviously appeared in the federal sources. And we are right now litigating in the federal sure and we don't have a final approval as well from FDA. The FDA had the tentative approval. So that's the answer to the question from a launch perspective. Competition wise, we are not first filer. So obviously, there is a first filer that is there. There's another company which is litigating, which is in the public domain. So all of those are potential competitors, authorized generics is always a potential competition. So all that, we always have to factor in.

Sure. And just last question from my end for Mr. Dubey. What tax rate should we expect for the next couple of years?

The taxes, actually, I will again stick to my guidelines given earlier. So for '21, '22, will be somewhere in the range of 13% to 14%. And a similar situation, 50 or 100 basis points plus or minus, we are expecting for next 3 years. I think after 3 years, we'll discuss again depending on situation, tax laws and so many factors are there.

The next question is from the line of Sriraam Rathi from ICICI Securities.

Just one question on this INR 80 crores of inventory providing in the U.S. market. [indiscernible] share for which 4 cities? And is there any reason that this quarter revenue is lower with this provision?

I'm sorry. I did not get your question completely.

Sorry, so I was asking that, I mean, the inventory provisioning that we have taken off INR 80 crores in this quarter. So for which product it is? And is there any relation with the lower revenue being reported in quarter 4?

I think Mr. Ghare, are you taking this? Or you want me to take this?

So Dubey you can take both and you can tell them [indiscernible] no big deal.

Yes. So as I talked, it's a U.S. required products. Of course, if in top 7 products, which we see is featuring in 1 of the top. Mainly it is that. Besides that small form -- other few products are also there, where we see even though they have self life more than 6 months, but at least in 12 months, will not be we are not feeling...

Mr. Dubey the largest product, you can tell them, just -- it's okay.

So I do [indiscernible] the product where we have taken [indiscernible]. So major chunk of INR 80 crore, it has gone in that.

Okay. Okay. And -- okay. So in this quarter, the revenue which is lower, I mean, is there any relation with this provision? Or it is normal run rate now, $73 million?

When provision it has gone in cost, obviously, it is going to bring down EBITDA as well as entire profitability. So impact is there.

Okay. Got it. And just a follow-up to that. This quarter, we have around $73 million, $24 million kind of sales, which is, of course, much lower than what we have for the full year run rate. So I mean in FY '22, should we asset at the overall business for the gas market should grow?

Mr. Amit.

Yes, yes, absolutely. We are expecting growth on our overall portfolio on a pure entire fiscal year basis. And my view in FY '21 also on your entire fiscal year basis, we have grown over FY '20. To answer your question, yes, we are expecting growth on overall fiscal year.

Okay. That's helpful. So this is what we mean we are expecting that in the coming quarters, the run rate should be seen?

Yes, Dani need to kind of go through at the meeting then answer it. Just letting you know.

Can we go to the next one. Next participant.

The next question is from the line of Shrikant Akolkar from Asian Market Securities.

This year, we have done very well in FY '21, we have done very well in the trade generic business, and it is now contributing 1/5 up domestic business. How should we see treasury business going in FY '22?

I think if your question is like -- I mean how should see a very broad question, so like it will change to grow in double digits. All I can say right now.

Yes. I think from the first quarter onwards, we have contribution probably has gone down. I think it was probably 1/4 of the total business. Now it is 1/5. So do you think that this will continue until we are -- this business is contributing about 15%, just like some time back?

Yes, we can. The contribution of gone down, not because the sand business has slowed down. It is because the prescription business has picked up significantly, okay? In terms of the momentum for trade generic for Q4 and even in the first 2 months of FY '22, it is still good. It is -- we are maintaining the momentum of FY '20 -- FY '21 and FY '22 as well.

Okay. So we should expect double-digit growth in that portfolio?

Yes. So whatever is the guidance for India business, I think the trade generic business is going to go and things with that.

Okay. Another question is on the overall color on the U.S. EBITDA margins in the quarter when we have taken inventory provision and overall in the FY '21.

On overall basis for fiscal year, I think it's a reasonable kind of EBITDA margin we have somewhere to double-digit kind of EBITDA margin. Yes, as I mentioned for this quarter, because of this inventory write off, we do not have positive EBITDA margin but definitely, for the year, we have a reasonable EBITDA margin of double digit.

Okay. And one last question on indoor facility. So if you can provide more color how many products -- because you're saying PI, so how many products would be filed from this facility to in FY '21 -- '22, im sorry?

So can you repeat your question, Shrikant?

So I was asking, there are 2 questions. One is if you can provide color on the facility kind of capabilities it has. And how many products can be filed from this facility in FY '22?

See, we have our Indore facility. And actually, we have already started taking 5 in batches. And in fact, we have 5 -- 1 or 2 products, and we are awaiting all it of years at the year. So on that front, we are very comfortable, and it's growing as our plan. Definitely, we are going to have more and more number of product file from this facility. Objective is to have best advantage of SEZ plant, and it's going as per our estimate only. So we feel we'll be able to start commercial production in reasonably well manner. And hopefully, and obviously, it is going to add up as and when the new filing happens from this facility. Right now, we have selected good products, having good margin. And so we are very optimistic. I mean, complete uses of this plan for improving our margins as well as profit after that.

We'll take one last question from the line of Saion Mukherjee from Nomura.

On the chronic segment in India, how should we think about or how are you thinking? I understand based on the IMS or AICD data, it's kind of more or less equally state between diabetes, cardiac and neuro CNS. How should we think about this is growing over the next 3 to 5 years? And what would drive it? Is it new launch opportunities that you get in this space or market share gains in older products, if you can make us understand what would be the key driver and if you can guide for a number, that would be helpful.

Sure. Thank you, Saion. So we will -- most of our growth is derived from cardiac and diabetes. In the chronic segment. I think that is very clear. Maybe for 2 reasons. One is obviously internal. The other is just a large market size of these two segments. And a lot of new launches. So -- and to answer the second question, the growth will be driven by gaining market share working have. And second, there are some items being off taking the next couple of years. So new launches would also play a role there, more thought about it. And this would be driven by -- mainly by cardiac and diabetes. Okay. So your first question, for, I release last part. So in terms of guidance, I think we will reiterate that I think the business is still on a low pace. We will double this in the next 3 to 4 years. Is there, he can add some color to it. As I'm sure you confident about [indiscernible].

So Sandeep, I think you are perfectly answered and complete that user focus will be on diabetic and cardio because they contribute almost 52% to the chronic business and industry. So if you have to build our product portfolio, then cardiac diabetes going to make big and as you rightly said, we are looking at doubling up our business in around 3.5 to 4 years' time. And there will be a mix of both. There are some good opportunities coming in forms of DPP-4 and SGLT tools. So in next 2 years, we'll have at least 3 such products which are blockbusters. And at the same time, we are also consolidating our current portfolio. So we are in process of building brands of INR 100 crores and INR 50 crores in a year or 2 year time. So building large brands and also exploring the future potentials, which can make us big. These 2 will be the growth driver for cardio debate.

Okay. That's helpful. And just if I can ask one last question. On your MR strength and what is it now? I mean, I understand you said you're not expanding it further. But if you can just share the number? And how has your market coverage increased over the years? I mean, are you using the higher MR strength to focus on brands or reaching out to more doctors?

So Yogesh, you can take that.

Yes. Yes. Yes. A mix of both. Currently, as the entire group, LTM group, we have roughly around 12,000 people working. And in acute, we have a clear focus of reach because we already have a large portfolio there. So we have expanded this year by close to around 600 people, and this is basically to focus on some of the critical brands like and pen and within also approach of reach also. So both the kind of approach for acute. In chronic, we will all -- we focus more on building productivity because here, we have a reasonable good fee force and our productivity is an average range. So we want to increase our productivity in chronic. So this is how we are driving growth acute and chronic portfolio.

Ladies and gentlemen, constraint, that was the last question. I now hand the conference over to the management for closing comments.

Thank you, everyone, for attending this call. If any of the queries have remained unanswered, please feel free to get in touch with me. Thank you once again.

On behalf of Motilal Oswal Financial Services, that concludes this conference. Thank you for joining now, and you may now disconnect your lines.