Alkem Laboratories Limited (ALKEM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Alkem Laboratories Q2 FY '22 Earnings Conference Call hosted by Motilal Oswal Financial Services Limited. [Operator Instructions] Please note this conference is being recorded. I now hand the conference over to Mr. Tushar Manudhane from Motilal Oswal Financial Services Limited. Thank you, and over to you, sir.

Thanks, Faizan. Welcome to 2Q FY '22 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, everyone, and thank you for joining us today for Alkem Laboratories Q2 FY '22 Earnings Call. Earlier to you today, we have released our financial results and investor presentation and the same are also posted on our website. Hope you have had a chance to look at it. 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 everyone that this call is being recorded and the call 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. After the end of this call, if any of the 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 gone by and strategy going forward. Over to you, sir.

Thank you, Gagan. Thanks a lot. Yes. So good evening, everyone. I would like to thank all of you for joining us today for our second quarter earnings call. For the quarter 2 FY [ 2020 ] has been a healthy quarter for the company during this quarter and for the company year-on-year as well. Year-on-year revenue growth of about 18% and net profit grew by 15%. During the quarter, we also generated healthy cash flows, which has helped us further strengthen our balance sheet with net cash position -- net cash position of about INR 1,150 crores as on 30th September 2021. Talking about our India business. It registered a growth of close to 26% year-on-year during the quarter and 43% for the half year, which was mainly driven by strong volume-led growth in our key therapy areas of anti-infectives, vitamins, minerals and nutrients, pain management and gastro as well. Most of our large mega brands continue to outperform in their respective markets, thereby maintaining their leading positions. Our chronic portfolio also deserves our market-beating performance with an increase in market share and improvement in market rankings. Our growth in chronic therapy area of neuro, derma and anti-diabetes was more than 30% for the first half of the year as IQVIA data, which is more than double the therapy growth rate. Our trade generic business also grew well in the quarter, thereby carrying on the momentum of the last financial year. During the quarter, we launched our Pulmocare division with focus to improve our presence in the Respiratory segment. Moving on to our international business. Our U.S. business with the quarterly sales of $83 million was almost flat year-on-year and quarter-on-quarter. The significant pricing pressure that we witnessed in our base portfolio was largely offset by new product launches, which included limited competition products like ibuprofen plus famotidine. During the quarter, we filed 6 ANDAs with U.S. FDA and we received 7 approvals. Apart from the U.S., our international business has delivered a robust year-on-year growth of 27% with good performance in Australia, Chile and U.K. Updating on our progress of -- in Biosimilar segment, during the quarter, we launched 2 products in India market, Denosumab and Azelastine. And have plans to further expand our portfolio going ahead. We are also meeting good progress towards taking some of these products to regulated markets over the next 5 years, which would be the key to unlocking of potential in the Biosimilar segment. In terms of regulatory inspections during the quarter, we had a remote and virtual U.S. FDA inspection of a Bioequivalence Center at Taloja, which was successfully closed without any observations. Also, all our manufacturing facilities supplying to the U.S. with the exception of St. Louis has an EIR as on date. Our new manufacturing facility at Indore is awaiting preapproval inspection by the U.S. FDA. With this, I would like to open the floor for Q&A. Thank you for listening.

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

Sandeep, can you throw some light on the India business. How should we think about growth, the last quarter had a lot of acute demand because of COVID, I would assume that would have come down, but still the overall revenue has been strong. So is there a seasonal pickup that happened this quarter? How do you read it? If I look at from a 2-year CAGR basis, it's around 12%, just about 12% growth, which also is some -- is a normalized -- looks like a normalized growth rate. So should we assume a low double-digit kind of a growth now? So if you can give some color? And also you mentioned about trade generics, how large is that as a percentage of your revenues now?

Yes. Thank you, Saion. So there are like a few questions on that, so I'll answer one by one. The first part is yes, there was some seasonality to it. But also we had added the people last year, we have restructured a large division, if you [ recollect ] especially of our large mega brand. So all that is playing out well. Unfortunately, last year because of whatever impact we had from the play out, but we laid the ground strong. So therefore, I think the growth is also coming new because we are gaining market share, it's not just tailwinds and good seasonality. And how we should look at it going forward? I think we are completely right, and we don't expect to have the same growth rate, which we had in the H1. So overall, I think we continue that we should look at a growth of 12% to 15% ook at a growth of ook at a growth of mid-teens or early teens, we have already maintained that. I think that continues to be our guidance going forward, Saion, on that. I'm sorry, there were some other questions, Saion? I [ can't help for ]...

And the trade generics segment. Yes, Sandeep, so I understand last year, it has grown -- the segment grew faster than your domestic business. How was the growth this year and this quarter so far? And what percentage of revenues is now coming from Trade Generics?

I think this -- this year also the Trade Generics has grown very well. It's in line or slightly higher than the domestic business. And as the percentage continues to be the same percentage it was in the last year and last quarter. So it's excess of around 15%. It's close to that.

Okay. And just one another question, if I can ask on the other international market. There seemed to be some step-up in growth. Is there any onetime sales that is there? What is happening in that market? We are kind of closing on INR 200 crores a quarter. So if you can throw some color on the dynamics in the ROW or international markets?

Sure. I'll invite Mr. Amit Ghare to comment on that. Amit, please?

Sure. Thank you, Sandeep. Saion, there are no onetime sales there. It's a combination of 4 or 5 key markets that we operate in, Australia, Chile, Europe, Philippines and Kazakhstan. These are predominantly [ more dominated ]. But to answer your basic question, but on a onetime sale. And you would have noticed that in the first quarter and second quarter, the [ sales were ] fairly similar.

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

Yes. I actually missed out the initial comments, I'm not sure whether you have covered. But one I wanted to know the reason for a very high other expense both for Y-o-Y, Q-o-Q, if I can understand right? And second, I also wanted to know what has been the base business erosion in the U.S. business as an excluding the launches in the last quarter?

Yes. Mr. Dubey. You can take the first part and Amit Ghare can take the second part.

Sure. So other expenses, if you compare with last year's quarter 2, yes, definitely it is from high side because last year, it was just 17%, 18% of revenue. But last year, it's not normalized kind of quarter. More or less quarter 2 is somewhere close to 95% normalized. So I think the other expenses living pandemic period and pandemic impacted time, I think we are in our range only. Generally, our other expenses are in the range of 23% to 25%, and we are 22.5% this time. So I think we are within the range because our marketing expenditure and all these, now it has come on a normal position.

I see. I mean I was looking at the absolute figure, which is probably the highest in so many quarters, maybe 8 or 12 quarters or whatever. Yes?

So if you see absolute figure also, last year's quarter 2, it was INR 420 crores. Now it is around INR 620 crores. So -- but last year's INR 420 crores, we cannot categorize this as a normal kind of expenditure under other expenses -- Because marketing expenses, as you know, last year, it was not totally on normal.

Yes, I understood. Okay I mean, just a little bit pushing on that. So in Q4, for example, we [ did ] I think roughly INR 550 crores. And in there, you mentioned that it is a little higher because we were preparing for some of the launches, et cetera et cetera. In other words, we were under the impression that INR 550 crore even the higher side, 623 is much higher than that. That is the reason. So if -- should we consider [ INR 20 crores ] as the normal range going forward, something like that will continue [ to incur ] every quarter?

As far as between 23% to 25% of revenue is normal range of our expenses. And that is normal if you see our history.

Okay. On the U.S...

[indiscernible] just looking at the absolute number, looking at a percentage will make more sense because it has a percentage to sales, some good part of this expenses is related to sales. As sales goes up in the absolute terms, the absolute cost will also go up. So I think you should look at percentage [ sales ] rather than an absolute number.

It's okay. Now I understood. And on the U.S. business, [indiscernible] that would be helpful.

Amit, you can comment -- on the U.S. -- sorry Sandeep, go ahead.

No, I was saying, Amit, you can go ahead. That's all I was saying.

Okay. All right. So on the U.S. business, as we have reported, we are about 2.5% down year-on-year on the quarter 2 level. And the primary reason for that has been price deflation, which is in higher single digits for us, almost [ reaching ] to the 8%, 9% level on an overall portfolio basis, which has also led to some kind of market share losses in unit term level. So that was kind of multiplied. And obviously, we have not been able to cover all of both of these losses through our new products, and that's basically the reason for where we stand.

So comment on gross margin would be helpful. I mean this quarter, it is 200 basis points higher than what it used to be. Again Q2, I mean, generally, we are in the range of [ 60% ], I think now we are in the range of [ 62% ]. Again, it is sustainable because we are under the impression that the raw material price would actually have a negative impact on the gross margin. That seems to be a positive impact. Any reason for that?

Yes. Sandeepji, do you want me to take this question?

Yes, Dubey.

So yes, you said very correct. And this time, gross margin, we have advantage and our gross margin is on a higher side, 62.2%. Basically, when you have better domestic sales because that really is having better gross margin. So that is one impact. And in domestic also, our product mix, what we sold, it was on a better side. So both these -- It has impacted in the better our gross margin. Yes, in U.S., NRV impact is there. But in U.S., we have positive impact on material COGS. So that also -- it has given the advantage to us as well as in U.S., we sold products having better margin. So all this put together, around 1.8% or 1.9% kind of advantage we got in gross margin this time. As far as forward, I think you must be knowing API prices. Now a lot of pressure is going on that. So it is going to be quite challenging. The second half, it will be quite challenging for most of the pharmaceutical company. But I think we have various levers with us. And definitely, we are going to try to normalize whatever impact we are going to have on material front. And our expectation will be somewhere in the range of 60% kind of for the year.

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

My question regarding the U.S. So I believe you've got well approvals in the first half of the year. So if you can just let us know how many have we launched in the U.S.? And what is the expectation? How many are you expecting to launch in the second half of the year?

Amit, over to you, Amit. I think you are best suited to answer this.

Sure. Of the 12, we have 2 competitors obviously, so those are obviously our [ question ] from launch perspective. I think of the remaining 10, we have been able to launch 8 of them so far. So that's the answer to your first question. What was your second question?

And how many approvals or launches can we expect in the second half of the year?

Yes. So I give you the answer so far and the 2 other -- which were approved, we [ launched those ] also. So that certainly will make it [ depend ]. By the end of the year, we are hoping that we launch at least 12. So we are expecting 3 to 4 more launches for the remaining 4 months.

Sure. And any kind of limited completion expectation?

Not really, not really.

Right, sure. So my second question is on the domestic business. Because turnaround has been very strong. But now the COVID largely behind and assuming there's no third wave. So would you like to call out any of the therapies or brand that we may see a slowdown because it has benefited more during COVID?

Yes. So this is -- I think that's built up on the first question of Saion, and I'm happy to answer it. So yes, because of COVID, I think we had certain, obviously tailwind and coming out of a low base last year. So I think there might be some slowdown in nutritions and multivitamins and things like that or maybe even antibiotics because this time the doctors just prescribe a lot of antibiotics also fearing secondary infections. So there might be a slowdown, but we don't see like a dramatic kind of shift downwards because I think we are very good to have this growth rate of -- like we maintain like mid-teens kind of. So yes, nutritions to be honest with you, might see some slowdown. But I think [indiscernible] also gone up. So it might not be very, very significant, honestly.

Okay. And just one more if I can squeeze in. So the tax rate was fairly low in the quarter. So the reason behind it, your expectation for FY '22 and for '23, that would be very helpful.

Sure. Mr. Dubey, I think you can take this.

Yes, sure, sir. Yes, you are very right. For the quarter, it looks on very lower side. But actually, we need to see effective tax rate for the year. So earlier, our guidance was tax rate between 13% to 15% kind of. As we are talking, actually, we have better domestic sales and domestic sales around 65% to 70%, we cater from our [ 15 ] plants, which is having a fiscal benefit. So that profit is exempted from tax. And that is the reason why it has changed dynamics of effective tax for the entire year. And now we are revising our effective tax rate guidance for the year from 13% to 15%. Now our new guidance is somewhat close to 10% to 11%. And since in our quarter 1, normal tax, it has gone because by that time, situation was not very clear. So impact of YTD, it has come in quarter 2. And that is the reason why we see 4% kind of effective tax in quarter 2. So -- but when you see half year, it is somewhere close to 9%.

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

My first question is a clarification. So I think Sandeep mentioned that there's a lot of initiatives and adding people restructuring mega brands, et cetera. Apart from the seasonality and some of the COVID benefits that have come through. So having that initiative taken, do we say that, okay, I mean, obviously, that high growth is behind us, but one of the participants also said 10%, 12% growth is still doable, given we are seeing growth across the new launches, chronic, et cetera. Would that be a fair thing to expect?

So 10%, 12% on what -- so the first answer is yes, but you mean to say for the balance of the year, for the full year, next year...

Second half of the year.

Yes, yes, for sure, Prakash. Yes, yes, definitely. Definitely, for both of them, but I just was clarifying. Yes, we will, we can maintain that very well.

Okay. Fair enough. And again on [indiscernible], you mentioned the share is 15% plus, or the growth is 15% plus or both are 15% plus?

No, the share, share.

Both, both, both obviously, because I said the growth is in line with our domestic business or slightly higher. So yes, both of them are.

Okay. And given the very strong cash flow that we are doing for the last few years now and the cash pile-up of more than INR 1,000 plus cores. And with the backdrop, there are many chronic sides, especially diabetes, there are a lot of brands getting patented, they will be available for sale. One of the participants -- one of the companies in the morning call said that we'd be buying few of the brands. So what is our strategy in terms of like chronic where we are growing very healthily, but on a very small base. Are you open to buying some of the brands?

Yes. Prakash, we are open to buy and acquire some brand, but I just think the likelihood of it happening, I will still say no because we don't -- I mean, yes, conservative, we don't like to overpay. I'm not saying that others overpay, that we are pretty cautious. So I would not count on that completely. I think we maintain that we will grow our business organically what we have done. Chronic business runs by 30% in this quarter is a good sign, even though it's on a low base. But again, I'll mentioned that we have started to do very well in some of the segments. And Yogesh, maybe can throw some light on it if required, but I'm not sure whether that's part of your question. But we have done [ well in ] some of the launches we have done. So we are definitely [ going to ] acquire something, honestly on the chronic side. Now if you -- so Prakash, what was your question?

How do we plan to scale up further on the chronic side? I mean, obviously, on a low base, we are going very strongly. Is there a plan to add more muscle?

No. we -- sorry, so we'll not acquire, Prakash, just I mean most likely we'll not, we're looking out, but if you get something at a valuation, which we think makes sense to us, we will. But we will continue to be aggressive on the chronic side. We have some green shoots visible in the last one year and Yogesh will comment on that, but Yogesh is aggressive, he's adding -- we are doing extremely well. We might add a few people here and there next year, but I think we are doing good. Yogesh, do you want to comment on that?

No, Sandeep, you rightly said that post [ patent ], all those brands which are coming out of patent may not be a good business proposition because the prices go down by almost 1/5 on 1/4 of the original price. So buying this brand instead, as you rightly said that we have an aggressive approach towards launching those molecules and make them big instead of acquiring others and then do a firefighting and even managing those [indiscernible], which is going to slow down by at least 1/4 of the original costs. So instead, you launch those molecules and make them big, and we have demonstrated this in the last couple of years. So we are pretty confident that all those molecules we will launch in diabetes and cardiac areas and make them big. That is our approach. So as Sandeep said, organic will be our way of developing chronic business.

Perfect. That's helpful. And last question for Dubey. He mentioned about good gross margins on sales mix and product mix in U.S., sales mix, higher India. And also fortunate on going forward raw materials and all those costs which are improving. But on the EBITDA front, since we are talking about double-digit growth, also we had good launches in the U.S. Do we maintain our 20% to 21% margin guidance or despite the [ beat ], is there a scope for increase?

Yes, Prakash, you're on [ dot ]. I was expecting this question from your side. So EBITDA margin, if you see for quarter, it is 22.5%. And as I talked to you, similar gross margin maintaining going forward, it will be a big task for us. And still, we believe whatever guidance we have given you earlier, we'll be in that range only. So not 21%, but somewhere around 20%, I think we still believe we'll be able to achieve.

[Operator Instructions] The next question is from the line of [indiscernible] from Motilal Oswal.

So I just wanted to ask you about the market share that our company has in Duexis? And what will be your outlook on the same?

Amit, do you want to take that, Amit?

Sure. Difficult to determine what kind of market share you have in Duexis because ultimately, you need to refer IQVIA to get the market share. We are estimating somewhere in the 20%, 25% range. And sorry, what was the second question related to that?

So I was asking on the outlook on the same. So how do you see the market share going there?

Yes. We have, obviously, 3 competitors who are coming, including 3 now. There is an authorized generic and another generics have come in. So we hope to maintain our market share at least.

Okay. Okay. Second one on the number of MRs. Can you bring the split between MRs for acute therapy and chronic therapy separately?

I will answer this, Sandeep?

Yes, please, Yogesh. Go ahead.

So our acute is around 80% of our [ field ] force, and chronic is around 19% to 20%.

Total how many?

Yes. Total, we are around 10,500. So out of it, 80% is acute and 20% is chronic.

Okay. Okay. And one more. So basically, I just wanted to ask on your growth breakup in domestic formulation businesses like price, volume and new launches for second quarter, FY '22 and maybe for the first half as well, if you can?

So first. For volume, growth is 17.8%, price is 3.9%, and the new product introduction is to 2.8%.

Okay. And on the CapEx side, what would be the CapEx in -- till date in the year? And what will be your guidance for FY '22?

Mr. Dubey, you can take that.

Sure, yes. For half year, we are somewhere close to INR 200 crores with cash, it has gone in CapEx. We expect somewhere around INR 450 crores to INR 500 crores by year-end. We are trying to optimize that, but I think we'll be in the range of INR 450 crores to INR 500 crores.

And so basically, this margin would be all towards maintenance or some of it will be growth -- growth CapEx, not margin?

It's a mixed kind of. And maintenance CapEx as well as expansion is also there. And it is all across. It is all across domestic as well as international requirement. So even some CapEx in R&D also. So it is all across.

Okay. Okay. And one last thing on the last participants, I mean when you explained the tax rate guidance. So I just wanted to know, so these [ 16 ] facilities, the benefit that we are receiving as far as taxation is concerned? So how long do you think that will continue beyond FY '22?

Actually, till the assessment year '26, '27, that is March '26, we are going to have this advantage.

The next question is from the line of Yash Tanna from iThought PMS.

So we come to know from the annual report on the AIOCD reports that most of our top 10 brands, which are INR 100 crore plus sales, they are mainly in therapies of anti-infectives, gastro, VMN. So my question is, do we have INR 100 crore plus brands in the chronic therapies as well? And if yes, how many? And if not, I mean, when can we expect some sizable brands in the chronic side? And I'm asking from a 2- to 3-year perspective...

Yogesh, you could go ahead.

Yes. So Yash, we expect at least one brand Glucoryl, which is an antibiotic [ way ], antibiotic therapy to exceeds INR 100 crores this year, so that's a good news for chronic side. But we still have a long way to go because most of our brand will be in a range of around INR 50 crores to INR 70 crores. And you can expect INR 100 crore brand in another 2 to 3 years' time, a couple of more brands to join INR 100 crore bracket [ order ].

Yogesh, so just one point there. On IMS or if we are [ EVAC ] whichever is the track, there, the brands have reported as a group, so they're are not so visible. That is something, I mean you must point out.

Yes. Yes. So Glucoryl, actually, internally, we as a group, we say INR 100 crore, which is IQVIA split the SKU also. So in that way, the largest brand will be Glucoryl-M, which will be roughly around INR 60 crores. That will take another 3 years to become INR 100 crores. And we have certain new launches, which will also take around 3 to 4 years' time to be INR 100 crore. So from an SBU point, you can say that at least 3 to 4 years' time, we should have at least 2 to 3 brands on INR 100 crores bracket.

And which therapies with these brands be in?

Mainly -- mostly in diabetology and cardiology.

Got sir. My second question would be like in the last call, we spoke that we have 3 biosimilars launched in India and now 2 more as you mentioned in the opening comments. And you also said that you would outlicense to [indiscernible] globally, we would try to tie up with some of the best partners for our biosimilars. So with this increasing share of biosimilars and the product mix, and we are also widening reach with all these tie up. We should see a positive impact on the margin side. And if yes, when can we start seeing this effect?

Sorry, your question is, is that biosimilars impacting margins positively. Is that correct?

Yes, that they are on margins. Yes, yes. And how much time frame? I mean just a ballpark figure, I'm not...

Yes. Yes, sure. So if [indiscernible] to launch anything [indiscernible] biosimilar will impact, let's say, the sales and gross margin, we'll have to do that in the regulated market, let's say, that [indiscernible] assumption. That would take at least 4 years from now. So we don't expect any change in gross margin color of our biosimilars for the next, I would say, at least 4 to 5 years.

Okay. Sure, sir. And just one more question, if I may. On the biosimilars, we have invested around INR 650 crores over the years. And I mean, how many -- how much incremental CapEx do we need for this segment over the next 3 to 5 years?

I think incremental CapEx might not be -- we don't look at it because some CapEx, most of the CapEx on our usual business is almost down; in CapEx, actually we are [ close ]. I think overall, we maintain that [indiscernible] CapEx overall for Alkem as a group. I think it is very well within it. How much now will do for biosimilars and things like that? I think that is something which will keep it flexible because it depends how we scale the business up because we're also watching for some key milestones before we kind of invest further or we need to invest. So I think I'll refrain from splitting it up between biosimilars -- I mean, biotech and Alkem as a group, but it is not something significant, honestly.

The next question is from the line of Vishal Thanvi from Valuequest Investment Advisors.

So my question is on domestic...

Vishal, you have to speak little louder. We can't hear you.

Yes. So my question is on the domestic formulation business. So we have 2 segments for acute and chronic. Can you give a breakup how much is acute and how much is chronic?

Yes. So we are 85% in acute and 15% chronic.

And in the last 3, 4 years, is the same percentage or it has significantly changed?

No, not significantly, but there is a gradual change from around 11-odd percent. This has become 15% in the last 4 to 5 years' time frame.

Understood. And one more thing like in an initial comment, you mentioned that you have launched 2 products in India. Can you name them, please?

You're talking about biosimilars, sir?

Yes, yes, I think that's what you're talking, right?

Yes, it's [indiscernible] 2 molecules that we launched in the last quarter, and I think that was mentioned.

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

Yes. This is actually a follow-up on previous participants' question. You mentioned that in USA, you have one more competition. But I understand is that [indiscernible] launched and that phase is still ongoing. And because of the -- still on the approval, they may not be able to launch for another 1 plus year. So do you still expect that you'll see competition [indiscernible] don't see the outlook?

Mr. Amit, can you take it, please?

Sure. I don't want to comment upon what [indiscernible] position is, but they don't have any mandated [indiscernible] because they were [indiscernible]. So they are free to launch and based on what we hear back from the customers, they have started launching their products and new offers, which is why I factored them in the competition.

So they've already launched, correct?

We believe so, but I can't be certain.

You can assume that [indiscernible] very clear that the market share will have around 20% or whatever it has, we'll maintain.

Okay, understood. And if I may, how many no competition launches you expect in the next 2 years, some ballpark to what [indiscernible] Some guidance on that will be very helpful?

Amit, do you want to take that Amit?

Very hard for us to say because by the time you get approval, there could be few other companies along with us before us. So how [indiscernible] to tell you that our aim will at least be to have 1 to 2 products every year as a very -- at a very broad level? And I also remember the definition of no competition could be very different. So anyone less than 3 is what I would consider as...

I'm so anything less than 3 would be [indiscernible] competition.

That's okay. So I understood. So broadly [indiscernible] year...

That's our ambition, yes.

[Operator Instructions] The next question is from the line of Prakash from Axis Capital.

I was just saying that I missed your growth expectations for the U.S., I mean, I heard there is a base business, high single digit size [ grows ]. At the same time, we also had good launches. So do we expect stable or marginally upward trend, which we had -- you have guided? Or how do we see the U.S. growth trajectory?

Amit, you could take that, Amit.

Sure. Prakash, I never guided for anything. We only talk about what the history was. And the quarter -- year-on-year quarter has been degrown at 2.5%. That's when I said. But I'll go ahead and answer. So this year, of course, it's going to be extremely tough for the entire industry. And I think on a complete year basis, fiscal year basis, we are looking at mostly flat sort of a scenario, at least at this time, sitting in November.

Sir, not audible, you're expecting what?

Flat. I'm expecting the year will end, the entire fiscal will be flat compared to last fiscal.

Okay. And then we have enough pipeline to grow from there?

We do have enough pipeline to go from there. And even this year, we will hire 12 launches, at least 12 launches. So basically, I think the problem has been, like I mentioned before, that whatever we are losing out on the market share and the price deflation, we are not covering enough from our new launches. So it remains to be seen how it will be in the fiscal going forward. [indiscernible] that we have done better on that count. But going forward, we need to see how the deflation really? Does it settle down? Does it come down? Where does it end really for the overall industry? And of course, for us, as the portfolio.

The next question is from the line of Vishal Thanvi from Valuequest Investments Advisors.

My question is on the U.S. business. So can you give us some numbers on margins of domestic business and U.S. business, EBITDA margin or gross margin?

Mr.Dubey, you can take that. I think it is a comparison rather than...

See, we never [indiscernible] -- We never give segment-wise gross margin or EBITDA margin of our businesses. So we always talk combined.

[Operator Instructions]

I think that was [indiscernible].

Yes, I think that was the last question for the day. Okay. There are 2 more questions, I think, come up. Faizan, can you go ahead?

The next question is from the line of [ Pratika Agarwal from ValueQuest ].

Sir, my question is on cash utilization plans for the company going ahead. Could you update some understanding on that?

No, I think we have always maintained that we'll have a dividend payout ratio of 25% and acquisitions. I don't see any large acquisitions happening. So we are going to maintain business as it is. We -- it's not that we have some different scenarios [indiscernible]. I think when the time comes where we have really a lot of cash and we -- that time we'll take a call. But right now, [ business ] as usual.

Okay, sir. Lastly, on U.S. business in last quarter, you had guided for year-on-year growth of 15% to 16%. And now you stated it to be flat for FY '22. So what pricing erosion be one of the major [indiscernible]?

[indiscernible] Amit could comment on that. Amit, I think [indiscernible] comment on that?

Sure. So yes, that has been a reason. Our pricing erosion has been in the range of 9% -- 8% to 9% in the entire portfolio. And some of it has also led us to a [indiscernible] market share. So there has been a market share degrowth as well. So overall impact, obviously, the offset by all the new launches that we do. But like I mentioned, we are now for this year, in this entire fiscal, the new product is just about offsetting the losses that we are having because of price deflation and market share losses, which is why for this year, this entire fiscal, I brought in guidance that we remain flat.

Right, sir. Sir post FY '22, '23, '24 or a medium or medium term, how should we be seeing this U.S. business?

Tough for me to say at this moment, obviously, going in our history, we've certainly grown at a much a faster way. Of course, now our base is bigger. So we will not [ discuss ] in percentile terms the growth rate that we've had historically. But you need to really see how long this price deflation phase is going to remain because this is a problem for the entire industry. And I think some of us like to believe that it can't be at this level going forward, it will be very difficult for many players to sustain at this level. So at some point of time, it will decrease. That timing kind of remains a bit of a question mark.

Sir,any major reason why this has accentuated in the last few quarters in [indiscernible]?

Yes, [indiscernible]. I think we talked about it last time also. I think it's COVID and some COVID [indiscernible] effect overall. So there's a degrowth in the market itself in unit terms, which we all know, certainly, the therapy needs a change or change in the -- from a growth perspective or degrowth perspective. And then there will be some [indiscernible] effects because of that.

The next question is from the line of Prashant Kothari from Pictet.

Few questions from my side. One was on the CapEx front. I think earlier whenever you are talking under the assumption that the company had a large amount of CapEx in the recent few years, and therefore, we had [ spec ] capacities, and we need to kind of increase the CapEx [indiscernible] of CapEx revenue going down for a few -- around the range of [ INR 300 crores to INR 400 crores ]. So this number of INR 450 crores to INR 500 crores comes as a bit of a negative surprise to me. I'm not sure that -- [indiscernible] change in terms of our plans [indiscernible] Are you trying to kind of [indiscernible]?

Sandeep [indiscernible] I think we always maintain what we said. [indiscernible] So I am not sure what's the reason of negative surprise. But yes, if I am missing a point, Dubey, you please go ahead.

No, sir. You have covered it. Actually, we never give any guidance of INR 350 crores CapEx for [ 2021, '22 ]. Actually, since beginning, our guidance is INR 500 crores to INR 550 crores. I think we are as per our guidance on the - and we are in that range only.

Okay. And second question was on the inventory front. Our inventories are kind of running at a higher level than what we used to be in [indiscernible] Do you think this will remain at a high level because of whatever kind of supply chain [ issues ] we are seeing across the industry? Or this is going to come down?

Inventory level is high. It is the intentional one. And actually, in this uncertain scenario, even inventory of raw material, we wish we have a larger inventory. But as well as for finished goods also, we want to have sufficient inventory. So we grab opportunity, whatever is available in domestic as well as in international market. So working capital, we understand our inventory level is on higher side, but it is intentional. I think a few days more we have right now compared to historical inventory [ deals ] what we had earlier. And that is intentional, and we are confident that is going to help us.

Right. Okay. And just the last question, when this rise of digital [indiscernible] which are growing very fast. I mean do we have a separate division or separate strategy for kind of managing these [ so that ] we call it the modern trade or the [indiscernible] channels or are we kind of deploying this [indiscernible] strategy as we used to have for the [indiscernible]?

Yes, that's a good question. So [indiscernible] we are not deploying any special division or strategy for this because please remember that as long as the prescription is honored and the doctor's prescription [indiscernible] especially worry about being something special for online pharmacies -- because the prescription matters and what doctors [indiscernible] has to be honored [indiscernible] pharmacy or brick-and-mortar pharmacy. So this is usual for us, but obviously, we're watching out, but nothing special we are doing for these things right now.

That was the last question. I would now like to hand the conference over to Mr. Gagan for closing comments. Thank you, and over to you, sir.

Thank you, everyone, for attending this call. If any of your queries remain unanswered, please feel free to get in touch with me. Thank you.

Thank you. Ladies and gentlemen, on behalf of Motilal Oswal Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.