Alkem Laboratories Limited (ALKEM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Alkem Laboratories Limited Q3 FY '22 Earnings Conference Call hosted by Motilal Oswal Financial Services Limited. [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, Mr. Manudhane.

Thanks, [ Neerav ]. Welcome to 3Q FY '22 Earnings Call of Alkem Laboratories. From management side, we have 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 Q3 FY '22 Earnings Call. Earlier during the day, we have released our financial results and investor presentation and the same are also posted on our website. Hope you 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 our CFO, Mr. Rajesh Dubey, to present the key highlights of the quarter gone by and strategy going forward. Over to you, sir.

Yes. Thank you, Gagan. Good evening to all of you, and thank you for joining us today for our quarter 3 FY '22 earnings call. I will briefly take you through the key operational and financial highlights of the quarter gone by and would then leave the floor open for questions and answers. Starting with the financial performance of the quarter, revenue from operation grew by 30% Y-o-Y, driven by robust performance in India business. Despite the inflammatory raw material landscape, our gross margin was almost flat Y-o-Y, which was largely on account of better revenue mix with higher contribution from India business. EBITDA margin dipped by 380 points Y-o-Y to 19%. The Y-o-Y dip-in in the EBITDA margin was partially because of saving on the marketing and other promotional spend in quarter 3 of last year, which was impacted by COVID-related drop down and has got normalized this year. Our net profit after tax grew by 16.6% Y-o-Y, helped by tax credit on account of restructuring in the U.S. During the quarter, we also generated healthy cash flow, which has helped us further to strengthen our balance sheet with net cash position of around INR 1,500 crores as on 31st December 2021. Talking about our India business, it registered a growth of about -- to 20% Y-o-Y during the quarter and about 35% for the 9 months of the financial year. This growth was majorly driven by strong volume growth, partially helped by COVID-19 tailwind in our acute therapy area of anti-infectives, vitamins, minerals, nutrients, pain management and gastro. Most of our mega brands continued to outperform in their respective markets, thereby maintaining the leading position. Our chronic portfolio also delivered a market written performance for the first 9 months of the financial year. Our trade generic business also grew well in the quarter and the 9 months of the financial year, despite the high base of last year. Our recently launched Pulmocare division catering to the respiratory segment, saw an encouraging start with growth rates higher than the therapy growth rate. Moving on to our international business. Our U.S. business with quarterly sales of $77 million was down 7% Y-o-Y. This was due to significant price pressure on our base portfolio that we try to offset by regularly product launches. During the quarter, we filed 1 ANDA with the U.S. FDA and received 6 approvals. Apart from the U.S., our other international markets delivered a robust Y-o-Y growth of 25% during the quarter with healthy performance in our focus market of Australia, Chile Philippines and Kazakhstan. Updating on our progress in the Biosimilar segment. During the quarter, we signed an agreement with Theramex to develop and commercialize tocilizumab for Europe market like U.K. and Switzerland, and also Australia. The commercialization is expected in the year 2026. In terms of regulatory inspection, all our manufacturing facilities supplying to U.S. barring the St. Louis, has as an EIR as on date. Our new manufacturing facility at Indore is awaiting pre-approval inspection by the U.S. FDA. With this, I would like to open the floor for questions and answers. Thank you for your patience listening.

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

My first question is on some of the cost headwinds, which industry is currently facing. So in your observation, have you seen any moderation of date in headwinds such as higher raw material price, freight cost, et cetera?

So what I understand, Damayanti, from your question, you wanted to know impact of higher API costs on our cost? Am I correct?

Yes, sir. And -- like how has been trend recently? Say, compared to last quarter, have you seen any moderation in recent weeks or so?

So as you know, price increase on API started somewhere start of the same quarter. And we covered in our second quarter amidst call also API prices, it has started rising now. And it was expected starting, given the impact in our COGS in quarter 3 and going forward. So quarter 3 also impacts to certain extent, it is there, but not significant impact is there. Definitely, since we ensure our raw material and packing material for at least 3 months. So whatever high-priced API or packing material we have procured, definitely quarter 4 is going to have major impact. So we feel somewhere between 2% to 3% of our margin, if we get impacted in quarter 4. As far as answer to your question, whether softening of prices has started happening or not, so yes, in some of the API, a little bit size softening we have witnessed. But our expectation after winter Olympics completion, I think that is the time when we have to see how China is behaving and how prices start indicating. So I think we'll come to know better once this winter Olympics gets over. But definitely, quarter 4 is going to have impact of higher API prices and -- ultimately impacting our margins also.

Okay, sir. That's helpful. Then my another question is on India part of the business. So can you broadly specify what is the current contribution from chronic therapies? And where you would like to reach in terms of chronic contribution in next 3, 4 years from this year?

Damayanti, in last quarter also, we said the same that we are currently contributing approximately 15% to the domestic turnover. And by '24, '25, our [indiscernible] is that we should reach around somewhere in the range of 21% to 22% of domestic turnover.

Okay, sir. My last question is, can you also specify the MR productivity for your acute and chronic segments, like where we are in terms of 2 segments in terms of productivity? And what is the blended right now? Blended number?

Okay. So chronic -- sorry, acute, we diligence put together, we are close to INR 700,000 in our productivity, it ranges from [ 10.5 ] to around [ 3.5 ], but broadly across chronic, acute, it is INR 692,000. Chronic, we have a productivity of INR 330,000. So these are 2 productivities. And across company if you ask me, which was -- I believe was your next question, was around INR 578,000.

Okay, sir. My last question -- quickly on the U.S. part. So obviously, you mentioned that prices are very challenging right now. So again, about recent trends, are we seeing similar, I'd say, elevated [ level of ] price erosions, the way we have seen in second quarter or so or in recent few weeks, at least, we have seen some softening on subspecific products also?

Damayanti, some softening we have seen, but that perhaps is if we're looking year-on-year obviously, the price erosion started in the first calendar quarter of 2021. So to that extent, the base is already now at a lower number. Overall, the deflation continues, which, of course, always continues for generics erosion.

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

Just wanted to check on the India business, what is the broad breakup of the Gx and the Rx?

Can you repeat your question? Broad?

Broad contribution from the generic business and the prescription business, sir?

You're talking about generic to formulation, right?

The generic and prescription business. So trade generic is around 20% of our domestic sales.

Okay. And would it be fair to say that it's grown higher than the prescription business?

Yes. Yes, Prakash, generic, it grew more compared to [indiscernible].

Okay. Perfect. And on that prescription business, sir, we had a good tailwind given the second, third round and all the 4 main therapies where we're present had this [indiscernible] that you've also mentioned in the press release. And I will assume it's really difficult to call out what would be the base business growth. But any ballpark number? I mean, would it be high single digit if these tailwinds would not be there?

You're talking about year '23, '24 -- '22, '23, sorry?

Yes, current 9 months, sir.

Current 9 months. So -- Can you repeat your question again?

So I'm just saying that we had some tailwinds of COVID Q1 obviously, but in -- especially in Q3, also, there were some [indiscernible] tailwinds, which you've mentioned correctly. Just trying to understand if COVID was not there, what would have been the base business growth? And how do you expect it next year given the high base you have?

So see, we don't have COVID-specific products, but then our empirical treatment or supported treatment, which are there [indiscernible] COVID marginal spike, like -- products like Pan, which is a GI product, then some of the multivitamins, zinc-based multivitamins [indiscernible]. So there is a marginal impact. And of course, in the first 2, 3 months, we had a good positive impact of antibiotics. So overall, there is impact of COVID on our business. But if you ask me specific to third quarter, then not really much. There is a marginal impact of COVID, not much. Yes. And your next question about how is next year we foresee, so very difficult to predict so far, but whatever some of the analysts -- they have done some working, we see around -- if we remove COVID impact business in the current year or if you include COVID impact and then throughout the next year, I think the industry should grow at around 8 to 9 percentiles. That's my [indiscernible] number, I would say. And we -- as a business, we will try to outperform the market growth.

Okay. Okay. Fair enough. And second question to Mr. Amit, on the U.S. filing. So filings are about 9 approvals -- there is about 18 with 3 tentatives. How do you see the -- numbers obviously don't matter much, it's a chunkiness of product, but how do you feel with this base next year should turnout for us in the year?

Prakash, next year in terms of filings, I know your question is on the revenue, but just on the filings, the ambition will continue to be in the [ 12 to 15 ] range. And in terms of launches, which will, of course, has helped the current year and will help the next year. We've had a good number of launches this year, and we are very optimistic in terms of growth going forward for next year. That was the real question I understood.

So with the price rising, we have come to a certain date. And now with new launches and ramping up of existing products, would it be fair to say that the chunkiness is the -- is not there anymore with most of the products, and we could grow double digit, would that be fair understanding?

Look, the objective would certainly be back to growing double digits. It now totally remains to be seen in terms of how good our launches perform, what kind of market share we get. And also remember, the price deflation for all the new launches is always higher, so if it's a day 1 launch, it's a rapid price deflation. Day 1 [indiscernible] in launches. If it's a follow-on launch, it still results into apparently rapid price deflation compared to the [indiscernible] business. So keeping all that in mind, however yes, we are optimistic for a good growth going forward.

Okay. And lastly, to Mr. Dubey, given the strong cash position now, how are we thinking about adding some -- using the cash because I mean, in the last 1 month itself, we have started to see some small, small acquisitions. I know as a company, we've not followed that path, but what is the thought process now? And how do you use the cash?

Prakash, we have replied various times. In fact, whatever cash we have, we keep for our business expansion. And of course, we are doing reasonably well with the dividend also going forward. So when I say future business expansion besides organic, inorganic opportunities also, definitely, we'll consider if we get at right price. But we want to do any inorganic after having complete details and considering rising of opportunities. So definitely, we have plans for cash available [indiscernible]. And in any case, we'll keep on giving dividends the way we're doing right now?

Any major CapEx plan?

Sorry?

Any major CapEx plan?

No, CapEx guidelines we have already given to you. This year, we are going to have somewhere close to [ 400 ] next year, between [ 400 ] to [ 450 ]. And after that, I think we'll be somewhere [ 450 ] to [ 500 ] kind of. I'm talking normal CapEx. It's something...

Yes. Yes. nothing new, no new major projects as such.

Yes. Not very specific, but we may be requiring domestic facility, say, after 2 years.

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

So my first question, again on the India business growth. So I think you did mention that the market will grow at 8% to 9% next year, and you would like to grow above that. So while I understand this, I think this year you have beaten the market hands down because I believe the COVID [indiscernible] treatment in terms -- you have been more success this year. So I'm just wondering that on this space, do you see growth actually tapering down very sharply next year?

Not really, see, this year, particularly the antiviral treatment was restricted, okay? So it is mainly antibiotics and all, which were sold. So yes, there will be some tapering which will certainly happen. There is a reason the market, traditionally, which has grown by 9.5% to 10%, we are talking about around 8% to 9%. So there will be certain tapering in the market. And so is business, so our objective will remain to outperform the market.

Even on this base, sir? Yes. I think no one has reported a 20% year-on-year, I mean, growth in this quarter. From this space also to grow, maybe at 9%, 10%, you think it's doable?

Yes. So see, we are not saying that we grew at the same pace, but we are saying we'll be outperforming the market growth.

Sure, sir. Sir, my second question, again, regarding India. So WPI this year is in double digits. I understand you have maybe 25%, 26% of your portfolio under price control. So should we -- so what has happened typically, you would take the full 10% or 11% kind of price growth next year?

Yes. So we'll try to see that we take the -- almost we take the full benefit of WPI price impacts. Yes.

Sure. And WPI is over 10%, so you can take over that? Let's say, it's 15%, you can take 15% size growth?

To that point, it is in a range of around 10% or so. So that should be the impact on our old pricing benefit, not 15%.

Okay, sir. Up to 10%, fine. And just one more clarification. Sir, Mr. Dubey mentioned that you will see on 2% to 3% impact on gross margins in the next quarter. Sir, did you mean 2% to 3% on a 9-month FY '22 base or over Q4 FY '21?

No, no. I was referring our Q4, not 9 months. 9 months, it has already gone. So we have margin more than 60%. So -- but for quarter 4, our expectation -- or we have estimate having impact of higher API prices to the extent of 2% to 3% to market.

Okay. I mean, so just to put back in context, last year, you did around 57% kind of gross margin. So maybe this time could be doing around 55%. Is that a fair understanding?

No. No. No. Actually, if you see our last quarter, our gross margin, it was more than 61%. So we expect we will be somewhere closer to 59% or 60%.

Sorry, sir, I don't understand this. So last year, because the Q4 is typically a seasonally weak quarter, gross margins tend to go below 60%, right? The last 2 years it's been 57%, 56%. So if you are doing 59% this year, then how come -- I cannot see the input cost impacting.

Sorry, actually, I was not comparing this gross margin with last year's quarter 4 because in last year's quarter 4, there was a few one-off items also -- write-off. There was an element of write-off in last year. I was referring to quarter 3, our YTD and quarter 4. So YTD, we have gross margin more than 61%. And we expect there will be [ hit ] by 2% to 3% on that. Am I clear?

Sure, sir. That's helpful. And sir, just lastly, the new division that you have launched, the Pulmocare division, just want to understand a bit more in terms of what will be the recurring CapEx going forward, how many sales reps you have added and so on?

So we are currently at [ 130 ], we should be reaching close to [ 125 ] this year in Pulmocare. Yes, that's your question, right? So you are only wanting to know about people or beyond this also something else?

Beyond this, I mean, the OpEx will probably start inching up, right? So I'm just wondering what should be the new run rate?

Yes. So Pulmocare, actually, in fact, recently, we started and we cannot expect breaking over immediately. So this year, our expectation, at the business level, to have some kind of negative, but that will not be big. And as Mr. Kaushal, said we have 170 people going to be in '22, '23. Definitely, we have to wait for some period. Amount of negative this year, it's not big, but it may be in the range of INR 30 crores to INR 40 crores.

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

Sir, on the India business, the growth is strong. Do you -- I mean, is there some sort of channel fill or buying in anticipation of Omicron wave that we saw in December? Or you think December could have -- this quarter would have equal strength given the Omicron cases?

Saion, we don't see any major panic buying even in December or January also because of Omicron. Possibly some element, it will be there. But we don't think any significant impact is there.

Okay. And have you seen any impact -- significant impact this quarter? I mean, so far in the month of January, for instance, where we have seen a lot of cases?

So just as I said in the beginning, this year, the impact of Omicron is not on the core antiviral kinds, but some impact, you can say, very minor, very difficult to evaluate so far. But Pan and your zinc preparations and antiulcerants, they may have minor, but not to the extent what was in the first wave -- second wave, sorry.

And sir, can you just talk about volume growth and price increase expectations that you have for the India business? Typically, like -- of course, next year maybe slightly higher on pricing. But typically, what's the kind of price and volume combination that you're seeing for your business?

So you want to know, Saion, for this quarter or...

I don't know. I mean, maybe we can -- because there's COVID-related demand sometimes. So it sort of may skew up things. But I just want to know, like going forward, what -- I mean, on a normalized basis, what is your expectation of how much of the growth you generally expect from pricing and how much from volume?

The pricing, as you just -- a few minutes back, Mr. Kaushal, he indicated, this time we have advantage of WPI also. So -- And wherever we get opportunity, definitely, we are going to take rise in price. But straightway, we cannot apply all across because we have to see ultimate price. Our price vis-a-vis is our peers' price and all this. But generally, our price increase is in the range of 4% to 5%. Definitely, this time, it is going to be a little bit more. So you can assume around 5% to 6% we expect to take price increase. And volume we are somewhere close to double -- somewhere close to 7% to 8%. I think there we need to realign, and there, we can have 1% or 2% lesser compared to it. But new launches are also there, and they are going to add up. So definitely, we are going to outperform market.

Okay. And sir, in the U.S., there is a decline that we have seen. So what exactly happened sequentially? Because this looks to be a steep decline. Any specific product you faced price erosions? If you can give some granular details on this [indiscernible]?

Yes, Saion. So obviously, the loss of market share in the previous quarters, certainly one of the factors that was responsible. The new launches that we had again in the previous quarter have gone through, again, a major set of deflation, price deflation. So obviously, the base business itself for the previous quarters compared to the current quarter that has been overall deflation. And that was obviously not offset by enough launches during the quarter, enough launches from a value perspective. So I guess that's the reason for a quarter-on-quarter decline.

And just one last question. I think in your opening remarks regarding the tie-up on biosimilars, did you say you look at commercialization in 2023 or I got the year wrong?

'26. Yes, '26. Commercialization is going to happen in '26.

And when do you expect the filing? '25? Is it calendar '25?

Yes, '24, '25, I believe.

[Operator Instructions] The next question is from the line of Nithya from Sanford C. Bernstein.

I had just 1 question on your outlook for trade generics in India. There's been a fair amount of interest in the recent past. 3 or 4 of your large peers have launched divisions. Health Tech companies have also been talking about [indiscernible] mode of private labels, not technically trade generics, but along the same lines. So how do you see this shaping up? Do you see this as a threat to Alkem's position in trade generics? Do you see that -- see this as a threat to branded generics if broadly there's a zero-sum game? Or do you see this is something that's expanding the market? Just your thoughts on here? How do you see this business shaping up?

Should I? So I think trade generic will largely play in a business of penetration because the prescription market, if you traditionally see a prescription market, it is largely in metros Class 1 and Class 2 suburban. And below that, it's still 60% odd population, we don't have a reach of medicine. So what -- we usually work on a channel management where they reach out to those places where traditionally a trade business, a prescription business may not reach. And strategically also, as a business, we do not encourage -- even in business also [indiscernible] to see there is an overlap between our brands and generics so that we maintain that line of differentiation between branded and generic. But I don't see really -- personally, if you ask me from the professional input, I don't see on a short or medium term, any threat to branded business through generic because a long way to go for generic to have a threat on prescription business. I hope I'm able to answer you. Hello?

The line for the participant dropped. We move on to the next participant? The next question is from the line of Yash Tanna, ithought Financial Portfolio Management Service.

And congratulations on a good set of number. My first question is on the U.S. business. So our business was around INR 1,200 crores approximately in FY '17, which is now around INR 2,500-odd crores. And so we have kind of doubled in 4 years. So my question is, in how much time do you think from here we can double our U.S. business? And what will be the growth drivers? Because as we are seeing that the oral solid market is becoming more and more competitive, so do you think we might need to venture into other dosage forms or is this growth engine enough?

Sure. So I don't want to predict when we double from here, the base is already pretty high. And this year, we're flat or currently actually in a degrowth under the 9 months. So for me to give you a number of years for doubling from there is very difficult. As far as your second part of the question is concerned, number one, we don't just sell oral solids. So as you know, we do sell powders, liquids, semi-solids, also. Nasals. So even though that's a small part of our portfolio, so I understand broadly what you're asking. As our CEO has said in the past investor calls, we are investing into some of the other more difficult generics. It takes time. The gestations are high, as you know, on this side of the business. So it will take time before some of those start coming into the commercial side. But definitely, for our company going forward, there are very clear plans of changing our product mix, more than dosage form mix [indiscernible] the product mix. There may be some other dosage forms also we may look at investing. And certainly, biosimilars is one area that we've talked in the past that we invest. All of these, though may take at least 2 to 3 fiscal years before we start doing them on the commercial side.

Fair enough. Fair enough. That's helpful. My second question is on the MR productivity side. So I think you just mentioned to the previous participant that our MR productivity on the chronic side is around INR 330,000. So I just wanted to know what would be the MR productivity of, let's say, your top best performing 20% to 25% of the MRs on the chronic side. So where I'm coming from is, eventually, the others would move towards that range, right? So what is the broad 20% to 25% top MR range? Productivity range?

See, in Chronic also, range is -- because we have been expanding year-on-year. So all those who are literally new in the business in chronic, say, around 2 to 3 years, where the productivity range will be somewhere between [ 1.5 ] to [ 2 ], [ 2.5 ], but -- those who are little senior in the business, 6 to 7 years, our productivity range is as high as INR 1,000,000 in chronic also. So it can average out from INR 1,000,000 to, say, [ 1.5 ] and thus it comes to [ 3.28 ].

Okay. Okay. So the top performing are around INR 1,000,000 also?

Yes. Yes. There are quite a few people who are in the range of around INR 1,000,000, INR 950,000 also.

Okay. And the others would eventually move towards that range?

Yes, because they are literally new. We keep on expanding for last 3, 4 years. So those ones finally will come to a reasonably good level of productivity.

Okay. Fair enough. One more question. So this quarter, I think we had 2 interesting press releases. One was about the exclusive agreement with John Hopkins University and some -- one other one was about the launch of some patent technology for the treatment of diabetic foot ulcers. So how are we thinking about these tie-ups? And what does this bring on the table for us?

So as far as the launch of foot ulcer is concerned, I think, still launch, it has not gone. Actually, the filing with regulatory is yet to happen. We believe at the end of 2023, we'll be able to launch it officially. As far as John Hopkins understanding we have, I think it's a long-term kind of project we have taken. And on cost front, I think it is not very significant. But we understand. We have guidelines of 6% of our revenue under R&D expenditure, I think we are going to manage within that.

Okay. Okay. So anything on the diabetic foot ulcer? As you said, you will launch by end of FY '23. So anything what kind of product is that or what kind of technology? And what is the market of that?

So see, diabetic foot ulcer largely -- it is something which lead to amputation because of gangrene and all. So this is not a treatment of gangrene. So what it does is when there is an initial damage because of foot ulcer and the wound gets deep, okay, so doctor treats wound, and he tries to see that it doesn't reach gangrene level. So this is pre-gangrene level treatment wherein doctor will try to heal the wound and then give a patch so that cosmetically, the foot or whichever part the ulcer is found, it looks cosmetically, good, so aesthetically good. That's the basic objective of this treatment. So wound healing and preventing further damage of foot, that's the basis of -- genesis of this product.

Okay. So ideally, it's like -- it's a vast problem? Or is it a very niche problem that happens to some people or it's like most of the diabetes patients eventually [indiscernible] at this issue, and there's no treatment to this?

Not most of the diabetic but there are a good number of diabetics uncontrolled, at a later stage of life, will have a tendency of foot ulcer first, and if not treated initially, can lead to gangrene and amputation. So you have to treat these patients pre-gangrene level. And there are good number of cases. This is not too niche also, but relatively, I'd say, it's a niche market.

Okay. And there's nothing else in the market right now related to this?

Yes, so far there's nothing. There are treatments for wound healing. Post-wound healing, will it -- can any product give a cosmetic look similar to that of original skin? This is the first of its type.

[Operator Instructions] The next question is from the line of Nithya from Sanford C. Bernstein.

Unfortunately, my call got dropped. So I didn't really get to hear the response, but I'll ask a follow-up anyway. As the trade generic part of your business continues to grow faster and becomes a bigger and bigger part of your portfolio, I assume it's at a slightly lower EBITDA than your branded generic business. Do you see an adverse impact in EBITDA, therefore?

Yes. So Nithya, you rightly said, compared to our ethical business EBITDA and margin, it is a little bit on the worse side. That's very true. And of course, business mix, if trade generic is on higher side, definitely, it impacts our margin. But let me tell you here, we have opportunities there also to optimize our margins. And I think we have reasonable margin in our trade generic also, reasonable good margin.

Understood. Do you see this current 20% share of India business becoming 30%, 35%, 40% or not in the near future?

No. No, I don't think it is going to have that much share of our business -- domestic business. Right now, it is 20%, and we don't see it is going to increase substantially in coming few years also.

Are there any updates on the trade margin caps that the government was talking about a couple of years back? We [indiscernible]

Initially it was discussed, but I don't think any further discussion is going on. So right now, I don't think any news related to this is in discussion.

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

Am I audible?

Yes, [ Gaurang ], go ahead.

So I just wanted to ask you about the addition of MRs over the next 12 to 24 months. Can you give some guidance on that?

Yes. So see, we have taken expansion of 650 people last year. And this year, we have added around 535. So total around 1,200 people we added in the span of 12 months. So currently, what we are trying to see is how do we settle them and see the productivity. But management is not averse to any opportunity. If it comes, we are open. So maybe some expansion might happen in the those businesses, which is need-based. As of now, for next 1 year, so far, we are not seeing any -- don't see any opportunity of launching such full-fledged divisions.

Okay. Okay. And so obviously, these additions of MRs over the last 2 years must have significant affected the productivity, which you highlighted was around INR 578,000, correct me if I'm wrong? How do you see this trend moving forward?

Yes. So see, the reason some of your colleagues previously asked me a question about our confidence of next year growth. So these are the people who will certainly add to business. But yes, there will be some dilution of productivity. So it may not reach that level sooner, but they will add to the overall volumes. Reaching that productivity will take a reasonably good time. So we can't predict but it will take time. There will be some dilution of productivity for 1,200 people addition in acute and subchronic business.

Okay. Okay. Again, on tax rate, what would be your guidance on the tax rate?

So tax rate, as we discussed, this time, we got advantage of recognition of deferred tax assets in quarter 3. And that's why if you see our results, it is instead of expenditure, non-fees income. But for this year, I think we'll be somewhere close to 3.5% to 4% on the effective tax. Provided, yes -- again, since now this budget has come out, and there are a few items which needs to be considered. So I have not factored that. So in normal course, we expect our effective tax rates somewhere close to 4% this year. And for next year and onwards, we have already given guidance of effective tax rate of 10% to 12%.

Okay. One more thing I wanted to ask was on this -- so like devices, are there any other niche product launches you're targeting over next, let's say, 12 to 18 months?

[ Gaurang ], I wouldn't like to comment on that.

Okay. One more thing on this biosimilars. So what would be our investment till date in -- for this business? And how do we see this going forward?

Mr. Ghare, do you want me to reply this?

Yes, sir. Go ahead, sir.

Yes. So composite our investment in biosimilar, OpEx, CapEx and clinical studies and everything, is in the range of INR 725 crores.

Okay. Okay. And how do you see this moving forward? What would be the -- let's say, for next 1 to 2 years, what would be the additional investment you would be doing?

See, we don't see any major investment going forward. Of course, revenue stream has started at our Biosimilar facility also. But I think for some period, some kind of support is needed. We don't expect any major significant further support, but somewhere close to, say, somewhere over around INR 80 crores to INR 100 crores kind of further support may be needed before this business starts generating positive.

If I can add, Mr. Dubey, I think on the overall R&D investments, we will stay true to our 6% revenue ambition or guidance that we've given. And please remember because our revenue keeps increasing every year, the absolute investment in dollars or rupee keeps increasing. And obviously, we'll allocate that 6% amongst all the R&D that we pay.

[Operator Instructions] The next question is from the line of Rahul Jeewani From IIFL Securities.

Now fourth quarter is seasonally a weak quarter for us because of the seasonality which we have in the India business, and that leads to some sort of a margin moderation for us during the fourth quarter. Now for this fourth quarter, we are talking about this incremental 200 to 300 basis points of margin impact being there on account of API cost increases. So how are you looking at the overall company level EBITDA margins for fourth quarter, given that for the last 4Q, so 4Q '21, we had reported a 17% kind of a margin, excluding the inventory write-offs, which we have taken. So for this fourth quarter, do you think that the margins can go down below 17%?

Yes. Rahul, you rightly said, quarter 4 is going to witness a hit from increased material cost and definitely, that is going to have some impact. Fortunately, in quarter 4 -- and you rightly mentioned quarter 4 normally, because of seasonality, it is weakest quarter for us. But I think trend what it is indicating, I think we are going to have a reasonable kind of quarter. And as far as overall EBITDA margin for the year is concerned, so we are not going away from our guidance and will be somewhere close to 20% as we said in our earlier call. So rest of the thing you can work out backward and see. So you'll see we are not far away from what it was.

Sure, sir. Sure, sir. And how are you looking at margins for next year, given that, obviously, there is some sort of cost pressure on the API side? But India portfolio for us next year would benefit from this 10% price increase for the WPI [indiscernible] portfolio. And given a sizable part of our India business is under price control, how should we think about margins for FY '23?

So right now, we -- Rahul, we have to wait and let this winter Olympics get over. Let's have some feel on pricing trend of material. I think we are keeping ourselves away from giving guidance on margin for next year right now. I think we'll be having some more clear picture once we sit for quarter 4 and that will be appropriate time to indicate on margins.

But sir, on a broad basis, do you think that the API cost challenges or the API cost pressures, which you will see, that will largely be offset by this price increase, which you will have on the [indiscernible] portfolio?

Rahul, actually, I don't want to speculate. Actually, there are various levers where you can work towards. But I think at this moment, it will be a speculative kind of statement from my side. So my request to wait for some time and let some visibility come to material prices. And we'll be in better position to give you further guidance.

The next question is from the line of [ Vishal Kandi ], an individual investor.

Sir, last call, you were talking about...

Vishal, sorry to interrupt you, you are not very audible. May I request you to speak through the handset?

Yes. So in last 3, 4 calls, we're talking about that the way we did expansion in management productivity. And so just I wanted to understand in the last 5 years, how many managerial persons we have added and what is the productivity?

How many reps we have added and what is the productivity? New added productivity through new representatives, that's what you're asking?

Yes. Yes.

So see, we are no different than the pharma trend because when we add new people, normally, you will see it is because of -- for a large division, which has multiple brands. So it is not the new launch of the division. So when we expand, we -- our expansion objective always remain to build large brands bigger. So Clavam and Pan together, so we create a Pan division and a Clavam division. But yes, when we take a growth of around say, 10% or 11%, so new productivity added on that, this is, I can say, roughly around [ 100,000 ] or so. [ 100,000 ], [ 125,000 ] comes from a new person who joins.

Okay. And if I take that -- if I put that in FY '16, '17, '18, what was the actual number and how much we have added? So can you give that number from FY '16 [indiscernible]?

So far, we have not done this analysis. We'll surely respond to this.

Vishal, you can call me after this call, and I'll give you the numbers for that. We don't have the data with us for the previous years.

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

Sir, I just wanted to understand on the margins thing again, because we have been guiding for some years that our margins should be kind of trending up to about 100 to 150 basis points [indiscernible]. Is that the guidance kind of being a bit more doubtful given what is happening externally in terms of API price environment? Or do we still kind of stick by that for the medium to longer term?

So -- Actually -- just now actually, I really affirmed our guidance given earlier. So for the year, we have given guidance of our EBITDA margin somewhere close to 20%. And we expect we'll be able to meet that expectation. Of course, increased material cost is going to play a role in that. But we understand and we are confident we'll be delivering whatever guidance we have given.

I'm sorry, my question was kind of more beyond FY '22 as well.

So beyond FY '22, just now I said, wait for some time. Let's have some visibility, and we'll wait this winter Olympics to get over. And after that, we'll be able to give you guidance for '22, '23. I think it's too early, and we are also not having clear visibility on material price ramp.

Okay. Understand. And the kind of outperformance that you have kind of in the last few months is quite impressive. Are there any kind of interesting change in the strategy you've done by which you're able to win better? Any color on that would be very useful to understand how we are kind of doing this well.

See, last time, I believe our MD also mentioned the same thing, and I will repeat that. See, during COVID, you would have seen that some of the companies, they changed their strategy and came with antivirals and all. And today, we are succeeding because we stuck to the basic and we kept on emphasizing on our core strategy. So it is not right for us to explain the strategy here. But whatever we have been doing, we will consolidate that because that's how we have succeeded. So no major change in core strategy. We'll just drive what we have been doing right.

[Operator Instructions] As there are no further questions, I now hand the conference over to Mr. Gagan Borana for closing comments.

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

Thank you very much. On behalf of Motilal Oswal Financial Services Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.