Alkem Laboratories Limited (ALKEM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to Alkem Laboratories Limited's Q1 FY '24 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 Limited. Thank you and over to Mr. Manudhane.

Thank you, Michelle. Welcome to 1Q FY '24 earnings call of Alkem Laboratories. From the management side, we have Mr. Sandeep Singh, Managing Director; Mr. Rajesh Dubey, CFO; Mr. Amit Ghare, President, International Business; Mr. Yogesh Kaushal, President, Chronic Division; and Mr. Amit Khandelia from the Finance Team. Over to you, Amit, for the opening remarks.

Thank you, Tushar. Good afternoon, everyone. And thank you for joining us today for Alkem Laboratories' Q1 FY '24 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 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 your queries remain unanswered, please feel free to get in touch with me. With this I would like to hand over the call to Sandeep to present the key highlights of the quarter gone by and the strategy going forward. Over to you, Sandeep.

Thank you, Amit. Good afternoon, everyone. In quarter 1 FY '24, we witnessed good revenue growth in operations with an impressive increase of 15.2% year-on-year. This growth was primarily fueled by strong performance of our business in international markets, wherein we have crossed INR 1,000 crores for the quarter for the first time. Several key factors including the softening of select raw material prices, a favorable currency impact, easing of freight costs, and the successful implementation of cost optimization efforts has led to better operational performance, resulting in EBITDA margin of 13.1% for the quarter. We remain focused on optimizing our operations and driving profitability for sustained long-term success. The quarter also witnessed good cash generation resulting in robust cash position of INR 2,430 crores. Coming to India business. We remain highly optimistic about our continued progress and firmly believe that we are well positioned to deliver market leading growth as we have always done in the past. Our growth in chronic therapy segment continues to outperform the market, delivering sales of 15.8% year-on-year, whereas the industry only grew by 9.9% year-on-year, for the quarter. During the quarter we also gain 1 rank both in anti-diabetic and also in neuro/CNS therapy. Thank you. With this, I think we open for Q&A.

[Operator Instructions] We'll take the first question from the line of Saion Mukherjee from Nomura.

My first question would be in the light of the first quarter results, with respect to your guidance that you had given of double-digit growth in India and around 16% EBITDA margin on a consolidated basis. So how should we think about that? And are you sort of revising any of these numbers?

Yes. So on the guidance of revenue growth side, I think double-digit growth currently seems challenging, but it will be very high single digits, for sure. And it also depends because of the acute focus on seasonality of quarter 2 and all. So we'll have to watch out for that, to be honest. And if your question is also because on the EBITDA margins, there we feel confident that the guidance of 16% EBITDA, we feel confident of achieving that side.

And on the raw material pressure easing, is there more room for it to improve, gross margins to improve in the coming quarters?

It's quite possible, but we'll have to watch out for that. I mean, yes, there seems to be that there is some relief there.

And my second question would be the pickup in international market, both in U.S. and other markets. If you can give some color as to what is driving? Are there any onetime opportunities because there's a very steep price? So are any country, specific country, which has contributed? Any more color if you can provide on the ramp-up that we have seen in the international business and how sustainable it is going forward?

Mr. Amit Ghare, can you take that, please?

Thank you, Sandeep. Saion, there's no particular market per se, which has contributed to this growth. Of course, the overall growth in U.S. has been much more than the previous quarter, certainly more than the last 4 quarters that we've seen sequentially or even year-on-year. So that has kind of overall contributed, but you'll also see other international business crossing INR 300 crores. So not one particular market has helped the growth. I think a lot of markets are working together as in growing very well, has contributed to the high numbers.

So you think this number is sustainable, the international business revenues, both in U.S. and ex-U.S. We should have this kind of sustainable going forward.

For sure, it's sustainable. Obviously, the pricing pressures on how the price deflation works, particularly in U.S. and in a few other markets will kind of define going forward. But as you asked the first question or the first time, there is no opportunistic business included here or no significant opportunistic business here, no onetime businesses here.

The next question is from the line of Foram Parekh from B&K Securities.

Sir, my question is, we have good net cash of INR 24 billion. So can you just share on your capital allocation plan? Like how do you intend to utilize this cash? Do we see any sort of M&A activities? Or do we only want to expand on MR front? If you can just give some sense on how -- on your capital allocation plan?

So ma'am, capital allocation plan is the same as we have already discussed in the last few quarters. Nothing has changed. So that's #1. Obviously, you can't deploy capital of this kind on employing or deploying medical reps, so that's out of the question. We also think we have more than adequately already deployed medical reps. So there's no expansion happening there as well. Mr. Dubey, you want to add something on that?

No, I think you have already covered that. And in fact, in most of the quarterly earnings call, similar kind of clarification is provided. And -- but, yes, of course, if we get some better opportunity, then definitely we have resources.

And my second question is on the U.S. front. Can you just give us some color, are we seeing any easing of price erosion or stability in price erosion? What kind of price erosion are you seeing right now?

Mr. Ghare, please, can you take that?

Yes, sir. Thank you. Yes, we have seen some easing of pricing pressure in the whole of last fiscal, it may be different quarter-on-quarter. But overall, in the entire system last year, we had double-digit price deflation. For this particular quarter, our pricing deflation was in single digits, though it was in high single digits. Now currently in the middle of quarter 2, the pricing deflation still is in the high single digits, but it's not in double digit. So it's better than what it was last year.

And sir, our margins, EBITDA margin is one of -- it's kind of the lowest in the industry. So -- and in this kind of good times when we are seeing easing of freight cost and API cost is easing. So do we not see of expanding our EBITDA margin guidance from 16% plus or minus 1%?

No, no, absolutely not, ma'am, I mean, see, freight was all-time high last year. So obviously, there was some indication it will come down. All this is factored in and when we gave a guidance of 16%. [indiscernible] we have one of the lowest EBITDA margin. So work is on, on that, but we are not upgrading our guidance what we gave last time.

But in your future, like 2 to 3 years' time, do we see it going back to something in 20s, what we saw earlier achieve?

We were never in 20s as far as I remember, but you all can correct me. We must be like some [indiscernible] could be where we could be close to that. But every year, let's say we have gained 50 to 100 basis points, we'll try to increase and that's what we stick with.

We'll take the next question from the line of Abdulkader Puranwala from ICICI Securities.

So my first question is basically on the St. Louis facility. So have we completely shut down that in Q1? And is the cost savings now reflective into this 13% margin what we have reported?

A large part of it, but not all of it. Plant is on the winding up stage. So it's not completely shut, but we have like 1,000 employees which we had last year. So maybe we'll taper it down the next couple of months. We could potentially have a buyer or shut it down.

And sir, your single-digit guidance for -- growth guidance for India. Is it possible to break it down between the branded generics and trade generics as to what could be the scenario for '24?

So I think the percentage that we have given first, it would remain. The percentage of ratio will not change between trade generics and branded.

And sir, in terms of your revenue contribution, how much would be that in trade generics for the current quarter?

It's high double -- high -- it's close to around 17% to 18%.

We'll take the next question from the line of Saurabh Kapadia from Sundaram Mutual Fund.

Sir, if you can talk about the [ NLM ] impact on the Q1 numbers?

If I heard you correctly, Saurabh, you are asking NLM impact? So yes, NLM impact, actually, we have a possibility. Actually, we already exercised that opportunity to increase our DPCO covered product's price, increase price 12.24%. But in this quarter 1, it has come later part of the quarter, from the month of June. So still this price increase impact in totality is expected to be there in quarter 2 and going forward.

And second question, what was the CapEx for Q1? And what has been -- is there any additional investment which has gone to Enzene?

So CapEx for the quarter is somewhere close to INR 80 crores, INR 78 crores, INR 80 crores. And we have already given guidance of INR 300 crores to INR 350 crores for entire deal.

And the -- any additional investment in the biosimilars?

This INR 350 crores includes even biosimilar CapEx also. So major chunk is for biosimilars only, for your understanding.

We'll take the next question from the line of Kunal Dhamesha from Macquarie.

So the first question on the trade generic number that you suggested, around 18% -- 17%, 18%. Is that a percentage of total revenue? Or is it percentage of India revenue?

Total domestic.

So I mean, as far as I was aware, we were somewhere around 21%, 22% on an annual. So is there a seasonality in the business?

Yes, there is of course seasonality, there are a lot of other things, yes. So 18%, 20%, could over around that quarter-to-quarter, year-to-year, yes.

But would you say the growth rate of the branded [Technical Difficulty] growth of branded generic and the trade generic is moving in tandem? Or do you say trade generic is still faster?

This quarter has been lower for both. So I think this quarter will not be a good answer to -- answer that.

No, I'm not saying this quarter, like maybe for last 12 months.

Yes, trade generic is always high achieve. We've said that in the past.

And let's say, our cost efficiency measures. I'm not sure, I might have missed it, I joined a little late. But has that kind of contributed in this quarter? Or is it going to contribute?

That has contributed.

It had contributed. So then we are basically, let's say, to achieve that 16% EBITDA margin guidance. Generally, quarter 2 and quarter 3 needs to do much better than what we are doing, right, which is generally the case because of acute being higher?

Correct.

We'll take the next question from the line of Bino Pathiparampil from Elara Capital.

A couple of questions. One on the depreciation and amortization, I see a decrease year-over-year. Is that because of the write-down that we put in the last quarter? There is a Y-o-Y decrease in depreciation and amortization. Is that because of the write-off that we took last quarter?

Yes. There was some one-off related to our U.S. entity. Actually, we took additional depreciation in quarter 1 of last year.

So this is a new base. Second, in the U.S., there was this Dabigatran product, which you couldn't launch because of supply issues, et cetera, et cetera. Any update on that?

Amit, do you want to take that?

Sure. I guess you're talking about Dabigatran, and Dabigatran, we are still not in the market. We're still working on starting our supply chain.

Also an update on Suprep, if you're planning to launch any time soon?

Amit…

Do you want me to take that?

Yes.

Yes, yes. Okay. Yes. Yes. No. So no, we are not in the market in the recent future for generic Suprep.

We'll take the next question from the line of Damayanti Kerai from HSBC.

My first question is if you can update us on your cost-saving initiatives. So you mentioned earlier, annual target around INR 200 crores to INR 250 crores savings. So how you are doing there? Like for '24, are you confident about achieving the entire savings or it will be a gradual move to that stated goal?

Our CFO will take that question.

Yes. So definitely, our cost-saving exercise is going as per our plan. And in this quarter also, we have sizable amount in our bottom line. Your second question was whether we'll be able to achieve INR 200 crores in this year. I think for sure, INR 110 crores, we have already taken in our budget. We'll see, our endeavor will be to have maximum. But…

But not all of it.

But I don't think it will be INR 200 crores. But definitely, we'll try to add maximum.

But say, if not in this fiscal, that's sure as the medium-term goal and as you progress more there, we should be seeing a gradual uptick from the 16% margin target, which you have indicated for FY '24. Should we work with that assumption?

No, I think we -- we already said that every year will try to increase by 50 to 100 basis points, and that will factor in what we are doing.

And my second question is, you talked about softening raw material prices. So does that include softening prices for [ penG ] also? Or that remains elevated?

I think that's not penG. penG is still tough, [ cyclosporine ] is still tough.

And my last question, if you can state the current MR count and your productivity for India business?

Mr. Yogesh?

Total we have now 12,000 representatives, okay? And our productivity average at LKM level is around 5.4.

5.4 lakhs, that's the average.

Yes.

And if you can split that among acute and chronic, that will be also helpful.

Acute around 5.9 and chronic 3.5.

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

Thanks for the follow-up. On the capital allocation question, given the continuous generation in cash and historically, Alkem is very conservative, is there a possibility to significantly increase the dividend payout going forward?

Going forward, I mean, never say never, but as of now, we don't -- we have not revised our dividend policy. So nothing in the near term or as in, Saion. But yes, if this cash becomes like swelled up in a couple of years' time, we are still conservative in acquisition targets, yes, then we would revise this, Saion. But we are still away from that.

And one more, if I can, on biosimilar initiative. So you, I mean, have been talking about certain technologies which differentiates you. If you can give some more color as to how should we think about Enzene going forward from, let's say, INR 140 crores, INR 150 crores that you have over the next 2 to 3 years?

Yes. So Saion, thanks for that. So I think Enzene will continue to grow rapidly, and we are looking at Enzene not just for biosimilars right now, but we also think the CDMO part of that business would also look pretty healthy. Obviously, we're in early days, we can't be dead sure that this would be right. But I think CDMO and biotechnologies are also a huge opportunity. So I think this business from this year will be close to 150 to 175, I think. And -- and this -- I think we can double this in a couple of years' time, maybe. But let's watch for it, think of it as a pinch of salt. I think CDMO is a lumpy business. We really don't know how much will come, what's going to happen. So I think in the next 6 to 8 months, we'll be very clear on because this is also a new segment we are trying to learn and build it.

And based on the traction in CDMO, is it with the innovators biotech companies or with the biosimilar companies, where you're seeing?

So biosimilar is the award because any biosimilar is a low-price business for them to make it at someone else's plant is difficult. Most of them are innovators, obviously small biopharma to some subsidiaries of a large innovator company also we're working at. So yes, we are in talks with some mixed like large and small, both. Some of them seems to be finalizing also.

We'll take the next question from the line of Rashmi Sancheti from Dolat Capital.

So you mentioned that we are running Enzene biosimilar plus Enzene CDMO segment sales at around INR 150 crores to INR 175 crores. How much are they down in this quarter 1?

Right. So actually, thanks for bringing it up. I think I stand corrected. I think we are close to INR 240 crores in Enzene, end of the financial year.

This financial year, you will end up doing INR 240 crores, that is earlier?

INR 250 crores. And this quarter 1, we did sales of around INR 57 crores, quarter 1.

And at the EBITDA level, are we doing in losses or, I mean, expected to do losses at the end of the year?

Yes. Mild losses end of the year in Enzene, yes. We'll not be breaking even this year.

So we should expect that that will happen in the following year.

Yes, that's right.

And how most of the R&D expenses is allocated to this business out of our total R&D, I mean, in percentage sun, if you can explain?

1/3 of our R&D budget is for biotech right now.

And just on India business, I'm just feeling that you're giving a very conservative number of high single digits because normally for Alkem, second and third quarter is very good in terms of the domestic business. That is what I understand. So don't you think that with the antigen sectors and everything is picking up in next 2 quarters, we should actually be able to do at least low double-digit sort of growth in domestic business?

I hope what you're saying is totally right, and we pray for it. But look at quarter 1, we have slowed down compared to the IPM. So I think it would be prudent to temper our expectations. We have no incentive to give a lower guidance, manage it. But yes, we really think that's going to be tough to go to double digits. And we might, I give it right, acute-based company, the season really supports, but that's like hoping that everything will go right.

But we are in the middle of the second quarter. So are we seeing any sales picked up or you feel that still it is [indiscernible]?

We don't see a very significant uptick compared to quarter 1.

We'll take the next question from the line of Kunal Randeria from Nuvama.

Mr. Ghare, on the U.S. business, you said that there was no one-off opportunity, right? So where did this -- such a sharp growth come from? Were there new launches or some market share gain in some products, if you can just highlight?

No, it came across from the -- more from the existing business than really from the new products. But new products obviously did contribute to the growth. I just want to make sure that it's understood correctly, quarter 1 of last fiscal was down quite a lot. So if you really compare 2 fiscals back, the growth is pretty modest or more or less like a little bit of growth. So really, that's where we are. Whatever kind of we lost last year, we have sort of gained back.

But any particular -- I mean, just to push a bit more. While I understand Q1 base was unfavorable, but it's nothing out of the ordinary. I mean, by that I mean maybe some competitor withdrawing from some molecule or anything of that sort. This is just model business.

That's correct. There is nothing abnormal here or unsustainable here, to be honest. But like I said earlier, the easing in pricing pressure also helped us overall.

Sir, my second question is on the trade generics business. Now in the last 12 months, several new big pharma companies, domestic pharma companies have entered this business. Do you think that longer run, it could cannibalize the branded business for the industry?

Sorry, your question was on trade general, what was it?

Yes. So I'm saying a lot of people, a lot of big pharma companies from India has entered this business. So could it cannibalize the branded market, that would like to grow branded market in the longer run?

I think in the long run, there would be some impact. But in the long term, there could be constructive impact. I think when a trade generics private labels from pharmacy chains, all of that, we keep hearing. So yes, long term, there could be some impact.

And sir, Sandeep, you are maybe the largest or the second largest player in this. Is there any moat to this business? If so, any players entering?

That's a great question. So actually, these are brands in itself because, see, they have the brand names also, the chemist and the retailer and the stockist. So your moat is your relationship with the stockist and retailer, which is built over a long -- many years. And even the consumers, I mean, who consume the medicine, they know about these companies. So it's not only a pricing game. It's -- that's a misconception. In fact, as I kind of said some time back, I think trade generics is also not a great word for this business because these are our brands actually. These are trade brands you could call them. A lot of products from -- of Alkem are picked up by the consumer by taking the brand name. We don't call on the doctor, but we call on the stockist and retailer.

We'll take the next question from the line of [ Chirag ] from DSP Mutual Fund.

Sir, have we taken any price hikes in the trade generic business also?

Mr. Dubey, you can take that.

Yes, definitely, price hike is there. That is one component of growth, we're forecasting trade generic. But there a lot of analysis needs to be done. To what extent we can take price.

But we have taken in the quarter 1. And that's a great question. It's going to prove that we have a brand, it's not just pricing.

So when we think of the business longer term, in general, when we think of the branded business, we think about it as a 3%, 4%, 5% kind of price hike generally. Is that true for trade generic also, although it may not be as linear, but generally, when you think of it in blocks of say, 3 or 4 years, does that kind of price hike come through?

I would say not like the branded like prescription. It depends on the segment. So if it has an OTX component, you can have a price rise, 3% to 5% every year. But on the others, it depends on some dynamics of competition and things like that also.

Sir, my question is based on historical data, over the last 4, 5 years, have you seen low single-digit kind of price hike in your portfolio?

We have, but it comes in lumps.

But you've seen mid-single digit or low single-digit kind of price hike in that business over 4 4.

IRR, yes, we can take a hike, yes.

And sir, you also talked about India business growing in high single-digit this year. In your assessment, how much will IPM grow this year?

In my assessment, IPM will grow by maybe 8%.

And in that context, you were thinking about Alkem's business growing in a similar…

Similar to maybe 100 to 200 max, I mean, 200 make us reach double digits, but yes, close to that.

And when you -- typically, your procurement for your large molecules in the coming season, when does it start? And how does this play out for Penicillin G-based products for the coming seasons?

Mr. Dubey?

Yes. So our raw material procurement and other excipients or packaging material, it keeps on continuous, this is normally we built inventory of RMPM for our production schedules. So I think -- but whenever we foresee and we get indication, prices are going to increase. Definitely, we try to make inventory a little bit on higher level. But beyond certain extent, you can't have inventory. So just to answer to your question, it is a continuous exercise. If penG prices are on higher side and in fact you -- if it is expensive, you cannot avoid. Instead of 1.5 months or 2 months raw material and excipient, you can go and add for another 15 days, not beyond that or a month or so. So the answer to your question, if prices are on higher side, definitely, it will be part of [indiscernible] yes.

And just the last question, sir, if I can squeeze. The chronic business today, is it contributing to EBITDA?

Yes, it does. So chronic almost contribute close to 20% to the business. I mean to overall chronic business, if you ask, chronic contributes to itself around 18% to 20% EBITDA.

Better margin for chronic.

Yes. So this is EBITDA margin to the chronic business I'm saying.

So chronic business margins are also similar to what you make on -- in the India business basically?

No. I mean, overall, yes, yes. But that's, again, acute we make far higher. I mean I'm sure you know, yes.

We'll take the next question from the line of Mehul Sheth from Axis Capital.

Sir, first question on domestic side. So when we see around 7% growth in Q1. So can you break it down between the volume price and new launches, how the growth was? And similarly, you are expecting high single-digit growth. So will it be like a volume price and further your expectation on these core drivers for the IPM?

Yogesh?

Yes. So quarter, if you ask me, then the volume growth is close to 1%, new launches is 3.7%, and NRE is 2.3%.

And sir, for the full year, like when we say high single-digit growth, say, around 8%, 9% or [indiscernible] market, then what will be your expectation? Is the volume recovery visible?

Yes. So you can expect a reasonable good recovery from NRV because of our DPCO impact, the price impact will be seen more in quarter 2 onwards. So large impact will come through NRV and a reasonably good amount will come through volumes as well. So these 2 will contribute to the growth factor in the next 2 to 3 quarters.

And sir, last one, some tax rate side. So this quarter was around 18%. So what will be the annual ETR for the company?

Yes. Actually, we are revising our guidance on effective tax rate. It is going to be in between 17% to 19%. And if we compare with last year, definitely, it is on higher side because of some compliance-related things related to marketing services. So now some of the marketing expenses will be considered as disallowances. And second thing, our profit from non-exempted plant, it increased, that is mainly our export business. So if that mix is going to change, then definitely, we are going to have higher effective tax rate. And to conclude, for this year, we are going to be in between 17% to 19% on effective tax rate.

And sir, one last, like one more slip in. So like any impact on other expenses or other because of your tech subsidiary? So the question was like any ForEx impact in other expenses side because of this generic?

No, it is not there in other expenses at least for this quarter because we have positive impact of ForEx, and it has not gone under other expenses.

We'll take the next question from the line of Gagan Thareja from ASK Investment Managers.

Sir, the first question is around the other expenses for the quarter. It's up 21% year-on-year against the sales growth of 15%. And if I adjust for R&D, which is actually slightly lower year-on-year, then the other expenses, excluding R&D, are actually up 28% year-on-year. Can you explain and elaborate there? I mean I would have thought that you are undertaking cost-cutting exercises. So this should reflect in the other expenses line item?

Yes, generally, it depends on what kind of phasing you have for your marketing expense. So for this year, in quarter 1, phasing related to marketing expense is on -- a little bit on a higher side. And definitely, to a certain extent, it got utilized because of softening of freight, especially export freight. That's very true. Yes, even R&D spending is a little bit on lower side. But it's a phasing of marketing expense. So we spent a little bit higher in quarter 1. So definitely, quarter 3, quarter 4 is going to have impact of that to a certain extent.

So I mean, are you suggesting that in the coming quarters of the year, the other expenses line item can actually be lower because you've upfronted a certain amount of your marketing expense in the first quarter itself?

Yes, obviously, because our annual EBITDA target is, guidelines is 16%. So definitely that is going to reduce going forward.

And I mean, this quarter, your sales mix, India to exports is 2/3 to 1/3, whereas normally for the full year, I think it's higher for India. So the sales mix would also have had some impact on margins. Would it then be fair to assume that as the sales mix normalizes, it should show up in margins going ahead in the quarter?

Yes, you are very right. Actually, sales mix, if it improves for domestic, then definitely, we are going to have better gross margin as well as EBITDA margin.

And you indicated that you were able to take the DPCO linked price increase only in the month of June for the first quarter, it was not effective for the first 2 months. And if that is the case, then again, sequentially in the second quarter, even that should help your gross margins and EBITDA margins. Would that be a fair assumption?

Yes, Gagan, actually, in fact, our guidance of 16%, we have factored all these things. So increase in DPCO price, whatever, it has not come in quarter 1. That also is factored. So I think you have given an answer to most of the things. If our product sales mix is changing, definitely, we are going to have better margin. But right now, our projection and our guidance of 16%, most of the things we have already factored.

Last one, if you could just clarify, I didn't hear the Enzene topline number. I was not able to hear it clearly. You indicated a certain sales number for the year and for the -- aspiration for the year and actual number for the quarter. If you could just kindly repeat that?

INR 240 crores for the year. Yes. So for the year, total topline for Enzene on consolidated basis, it is going to be INR 265 crores -- INR 260 crores around.

And what about last year?

Last year it was around INR 160 crores.

You recently launched, I think, additional products, Cetuximab and some more. Is there anything more in the pipeline that you intend to add this year?

Yes, yes. Every year, we intend to launch 2 to 3 products. There's certainly something coming in the next quarter.

And you foresee a breakeven in Enzene in the coming year, right?

Next year, yes.

How has been the reception of your ophthal portfolio? I know it's early days, but if you could give some idea on ophthal and also on the diabetes and cardio side? I think last year cardio was weak, if I recall it correctly.

So ophthal is very early. I will refrain from answering. I would love to answer you, but just give us a quarter more. Cardio and diabetes, Yogesh, you can.

I think you're right. So diabetes, you know that we are outperforming the market reasonably well. Cardiac, I think we have significantly improved now compared to last year, where our EI, evolution index, was below 90. Now in this quarter, we have reached 98. And for the month, it is 101. So if this trend continues in the next quarter also, we should -- we have a EI more than 100, and that is outperforming the market. So cardiac is reasonably settled.

So for the chronic portfolio in India, would it be reasonable to assume that you can sustain mid-teens sort of a growth for the year? You've already got that sort of a number in the back for the first quarter? Or do you believe there's potential for it to be better?

No. So we should be in around that. We will aspire for better, but mid-teens is what we should be surely driving.

[Operator Instructions] We'll take the next question from the line of Punit Pujara from Helios Capital.

Sir, so for the quarter, you added $12 million to $13 million in the U.S. business, both on quarter-on-quarter and year-on-year basis. So I just wanted to know because of that and cost-cutting measures would have aided your EBITDA profile. So I wanted to know, are we in profits in the U.S. right now? I'm not looking for a number, but just directionally, is it profitable at the current juncture?

Mr. Dubey?

Yes. So answer to your question, at business level, are we profitable? Yes, definitely, we are profitable without taking few of the overheads. Here I'm referring corporate overhead or similar kind of overheads. So definitely, we are in profit. And I'm sorry, what was your first question?

No, that was -- the question was on profitability only. I was not slicing or dicing anything, after R&D and overheads, everything put together. That was my question, sir.

At business level, we are in positive.

And sir, lastly -- updated on anything, I mean, you had communicated that you are in CapEx [Technical Difficulty]. Sir, last quarter, you had indicated that you are incurring CapEx for Enzene in the U.S. What are the project commissioning timelines are you anticipating?

We're 1.5 years away at least from that, 1.5 years away.

And sir, quick last question from my side. What's the R&D guidance for the full year considering the revenue guidance revision?

I think 5% is a good estimate.

We'll take the next question from the line of Akash Dobhada from Motilal Oswal Financial Services.

I just wanted to know the gross margin guidance for the year.

Gross margin guidance, we have already given 59% to 59.5%, I mean, that we've maintained.

We'll take the next question from the line of Amar Maurya from AlfAccurate.

So sir, my first question is on the MR strength. What would be the breakup -- broad breakup between the acute and Chronic?

So we had 20% of our overall reps is chronic. So out of 12,000, 2,400 for chronic.

So basically, sir, I think earlier -- so the productivity level, if I see, has significantly improved in the chronic versus the acute, which we were expecting to improve further. I think that has not inch-up to the level which we were expecting. Any specific reason for that, sir?

It is largely because of expansion. So while at broad level, standard level, you might see productivity is stagnated, but this is because of increase in manpower. So last year, we expanded close to around 800-odd reps. So that dilutes our productivity. That's the reason you might be seeing a stagnated productivity.

So now given the pickup and all, it should improve from here on?

Yes, yes.

We'll take the next question from the line of Kunal Dhamesha from Macquarie.

I just wanted to understand on the LV business. Right now, it's all revenue coming from India. And secondly, on the same Enzene business, if you could help us understand the economics of the business as to the gross margins right now and the fixed cost -- fixed operating cost. So once you grow, how much improvement can come from there? That is the first question.

Sure. So I think we'll answer not all of it, honestly. It's too early to comment on gross margin and fixed cost and all. We'd love to answer it in a larger business. We'll give you a split with international and India. So the entire international component is not on India. International is 20% and domestic is 80% including CDMO and products, both.

And the plant, if you can help us with the, let's say, bioreactor capacity, and has it been inspected by which agencies till now?

Yes. it's inspected by the [ TGA Australia ] and [indiscernible] EU, so they would also come in, in some time. But it's TGA approved in regulated markets, it's TGA approved, inspected, yes.

And the capacity front, bioreactor capacity?

We'll come back on that. We don't have it off hand. Answer you separately on that.

And secondly, on the EBITDA margin improvement, let's say, beyond FY '24, which we are suggesting 50 to 100 basis points every year. Now the [ VIC ] it is there are 3, 4 drivers, right, at least for FY '25, we would see incremental cost efficiency and then Enzene profitability improvement and then the general operating leverage in India. I mean -- so, my question here is, does this 50 to 100 basis point incremental improvement, would that also assume raw material prices of some of our key molecules going down?

Yes, some part of it would have to play out. And operating leverage will play a large part of it beyond '25.

And the last one, if I may, on the trade generic business, you have said that we can take price increases, et cetera. But generally, I mean, when I look at our trade generic prices as compared to the branded prices for the same molecule, they are generally only around 10% to 15% cheaper, right? So to that extent, we don't have that much kind of leeway. Is it a fair assessment or I'm wrong here in terms of numbers?

I think we don't have that much of leeway compared to branded generics, for sure. That's a fair assumption. But we stand by what we said. There is -- we do take a price increase in trade generic as well, not as structured as branded generics, but they do come and they come in lumps. Yes.

And at any point, have we thought about some of our peers have changed the strategy by putting this -- some of the big brands into the consumer health care bucket. Would we also plan to do this at some point or -- and then what…

At some point of time certainly we'll do it, and we do think about it, and that's very interesting. But we also have to think that it's a huge franchise. We have the doctors. So we'd have to be careful on that, but we certainly think about that to answer you. As a possibility, in the next couple of years, we might see the move then.

And what benefit could it bring for us on a broader level, I'm not asking for exact benefits in terms of margin, et cetera, but like strategically, how that…

I think just a larger consumer base. And whenever this is done, normally, you do see a dip in the first year, 1.5 years. But there are a lot of examples what can happen in Ranbaxy -- when there was Ranbaxy, when they went from Rx to OTC. They did become large brands, Revital and the other pain killer, Voveran and all of that stuff.

We'll take the next question from the line of Rashmi Sancheti from Dolat Capital.

Sir, do we have any claims of overpricing from DPC or MCPA where they're considering this [indiscernible]?

Not any significant as far as it has come to our notice. They keep on communicating and then we clarify them. So nothing significant as such.

And for the U.S. market, how many launches are we planning for this year, any strategic number we would like to follow?

Mr. Ghare, you can take that, please.

This year, we've planned about 8 launches in the U.S.

And these are all mainly [ OSEs ], right?

That's correct. But like we have said in the past, we also do liquid, we do powder. We do nasal sprays. So yes, they are spread across these dosage form.

And sir, on international business, can we take this as a new base of quarter 1 of roughly INR 319 crores as you already mentioned that all the markets are contributing to the overall growth?

Yes, there is nothing which is onetime year. So to that extent, this base can be taken. Of course, quarter-on-quarter, some variance will always come.

We'll take the next question from the line of Mehul Sheth from Axis Capital.

Sir, just one clarification. When you said your tax guidance of 17% to 19%, it is for FY '24 or even for FY '25 and '26?

So this was for FY '24. FY '25, we'll come back to you, after seeing '24. So this 17% to 19% is for '24.

And sir, just one more, like when we talk about capital allocation, do you have any plan like to foray into ventures like consumer health care or anything like your peers, some of the peers are doing that?

No, sorry, your question was, plan is on what consumer?

Consumer health care kind of ventures like…

Yes. I mean, we think about it every day, it's interesting, but the EBITDA margin will impact it. So I think we'll have to think about that because the first 2, 3 years would be marketing, spend would be high. So we'll time it adequately. But right now, we don't have any plans to foray into it.

Ladies and gentlemen, this will be the last question for today, which is from the line of Saion Mukherjee from Nomura.

Just one clarification on the international business. I mean, typically, we have seen a lot of volatility with many companies. But for Alkem, it has been a very steady growth. And if you can give some idea as to, is this entirely branded generic kind of business? Or you also have some tenders which can go up and down? So the nature of the business at an overall level. And some of the markets like [ TD ] and all, which is a large market, we have seen consistently 30%, 40% CAGR kind of a growth in the last 4, 5 years. So how are you sort of driving this? If you can give some idea on that.

Mr. Ghare, you can take that.

Sure. So there are businesses which have the institutional component, so no 2 things about it. But the overall business is obviously achieved based on each market, looking at their numbers and looking at all the areas that we can expand or grow in. And the first point, really trying to answer your question was, we have a bigger slice of the interchangeable generic business versus the branded business. So that clearly is a split or that's clearly the way we operate our [indiscernible]. There's no one particular market, which kind of jump out. And there is -- like I said earlier, there is no onetime business that came into these numbers. So we strongly believe that these are sustainable. Having said that, there will always be some variance quarter-on-quarter.

Sir, so what is the split between institution generic and branded generic, approximately?

Yes. There's nothing like institutional, so I don't want to split it that way. But interchangeable generic versus branded generic, that split is 90% is interchangeable generic, 10% is branded generic. This is overall international business.

As that was the last question for today. I would now like to hand the conference over to Mr. Amit Khandelia for closing comments. Over to you, sir.

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

Thank you very much, sir, and the members of management. Ladies and gentlemen, on behalf of Motilal Oswal Financial Services, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.