Caplin Point Laboratories Limited (524742) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY '20 Earnings Conference Call of Caplin Point Laboratories Limited, hosted by Monarch Networth Capital. [Operator Instructions] Please note that this conference has been recorded. I now hand the conference over to Mr. Vineet Gala from Monarch Networth Capital. Thank you, and over to you, sir.

Thanks, Deke. Hello, everyone. On behalf of Monarch Networth Capital, I would like to thank the management of Caplin Point Labs for giving us this opportunity to host the Q2 and H1 FY '21 earnings conference call. Today, we have with us the senior management team from Caplin Point Labs, including Mr. C.C. Paarthipan, Chairman of the company; Dr. Sridhar Ganesan, Managing Director; Mr. Vivek Partheeban, Chief Operating Officer; Mr. D. Muralidharan, Chief Financial Officer; and Mr. M. Sathya Narayanan, Deputy CFO. I would now like to hand over the call to the management team for the initial comments. Thank you, and over to you, sir.

Thank you, Vineet. Good evening, everyone. We are pleased to welcome you to our earnings call for Q2 and H1 FY '22. Please note that a copy of our disclosures is available on the Investors section of our website as well as the stock exchanges. And please do note that anything said on this call, which reflects our outlook towards the future of which could be construed as a forward-looking statement must be reviewed in conjunction with the risks that the company faces. With that, I would like to hand over the floor to our Chairman for his opening statement, please.

Good evening. Welcome all to our earnings call. My colleagues will talk on the numbers and ratios. Hence, I would like to touch base on the following. In Chile's products, markets and model, we have been registering differentiated products in our existing markets in the following years, namely CNS and CVS; second, oncological products; third, specialty injectables or hospital division. We already identified the marketing team from India, which will take care of the brand marketing in the areas of CNS, CVS, onco and specialty injectables. Some of the employees have already reached there, and others are waiting for their visas. The important point here is that the number of competitors for these type of products and brand marketing only from the multinational companies and from 1 or 2 local companies. This would also create a separate revenue stream in 1 or 2 years in the existing markets to our company. We are also registering more generic products in the existing markets, which again strengthens our presence. And customers feel happy to note that we have different buckets of products that created a huge basket available to them. On the other side, we are registering products in midsized markets such as Chile, Peru, Colombia and Costa Rica. We've already started exporting small consignments, and this would increase in the due course. We have plans to register our products in Brazil, and we already obtained the online approval from ANVISA Brazil. The next big opportunity for Caplin Point is Mexico because of the size of the market and its proximity to the Central American countries where we are a strong player now. We received one registration from Mexico. We will be able to increase the registration and also start good business once the travel restrictions are lifted. Further, it will not be out of place to mention about Venezuela. We received a transfer of $4.5 million in the last 3 months. We also exported $3 million worth of goods in the last 3 months. Since the crude price has gone up, we sincerely foresee larger opportunities from Venezuela. We also started registering our products to more than 10 countries in Asia and Africa, where our presence is not there currently. We further identified CIS as a greater opportunity for injectables, both general injectables and oncology. We have shortlisted 2 candidates to have very good exposure in CIS markets. The CEO of the company will talk of our activities in CSL and U.S. market. Now let me look at the people and projects. We have been recruiting people with hands-on experience from bigger companies. Our attractive use of -- helps us to attract and retain our talent pool which is very important at this juncture. We witnessed a change in the mindset and skill set of our old and new of our company, which is very important also for the growth of our company. We are creating a separate team to train the new entrants for necessary skill sets that will also help the company to grow in future. Coming to projects, there is an ongoing second phase in CSL, which again, the COO will brief it. We also have 4 projects: 2 are APA, and 2 are for the formulation. One API is for the U.S. FDA project and the other one for the oncological product, and we already bought land of 19 acres in an industrial estate where we are planning to start the construction for both the API projects. And the formulation project, we call it as Caplin Onco in an industrial estate called Kakkalur where we bought a building in 120,000 square feet, and we are going to start Caplin Onco Tablets to start with. And the machineries for which have already been placed, and we are expecting the machineries from Germany by March or April of 2022. Since there is more space in the form of a second phase in the existing building, we have plans to either go for OSD project or a penem injection, especially the ertapenem where there is a huge opportunity in the international market. However, we found the recent opportunity in the form of acquiring an OSD plant with U.K. MHRA and the discussions are on. We have very narrowly missed an opportunity of acquiring U.S. FDA API plant, which the COO will brief it. Further, we also have some challenges such as ocean freight and the transit time to our destinations. The ocean freight has increased 4x. It used to be in the region of $3,000 and $4,000 which has gone to $16,000 to $20,000. The transit time used to be 30 to 45 days, which has gone up to 3 to 4 months. Restrictions on travel due to COVID pandemic has also disturbed to a certain extent no expansion of the markets. However, our existing business has been -- has not been impacted in a big way except the delay in commissioning the second injectable plant -- sorry, second injectable line in Caplin Steriles and also an increased inventory in transit. Finally, you are aware that we have enough cash reserves. We also have maximum products registered in ROW markets and regulated markets such as U.S. and other places. Although it's not huge in numbers, we have already started -- we already started to have a presence in the regulated markets. We further have enough products in pipeline and WIP stages in some of the regulated markets like U.S., Brazil and Mexico. We also have the right people to manage our facilities and marketing. And our current projects are in various stages of completion. Hence, we are confident of creating many milestones in the years to come. Today, Caplin is a metaphorical butterfly, flaps its wings flight larger markets from smaller markets, and the larger markets are going to be in South and North America. Thank you. Thank you very much.

Thank you, Chairman. Now I'd like to give a little update on Caplin Steriles, which is our regulated markets injectable facility. We've been making fairly good progress in the last few months. with more product launches and also completing more exhibit batches now that we have 2 fully functional manufacturing lines and also a third ophthalmic line. In total, we have about 17 approvals out of 20 that has been filed. Of the 17, 12 are in Caplin Steriles' name and 5 are under partners' name. And out of the 17, only 2 more products are to be launched, which will happen sometime by January and February of next year. All of the launched products, we have seen high single digits to low double-digit kind of market share, and we constantly work with our partners to improve this market share to sort of 15%, 16%, which is a very good space to be because many of these are simple solution products. We're in the process of doing exhibit batches, et cetera, for the more complex products, which fall under the emulsion and suspension categories. That will happen in the next 12-odd months. And when we are talking about the partners, we've been working with the large companies in the U.S., in the past. Now we are slowly evolving our business model to work with a distribution kind of a concept where we are working with a company that is very well established in terms of injectable sales in the U.S. They know the right kind of channels. They know the right buying groups, et cetera. And this will be a precursor for our entry into the U.S., which most likely will happen by 2023. We are also in the process of -- in fact, we've already started exporting products to non-U.S. markets from the site, with the first exports happening to Mexico and UAE in the past 3 months, and we expect this business to slowly grow as well. And apart from U.S., we have already filed 3 products in Canada in the last few months and 3 more will be filed in the next 1 or 2 quarters. So we expect there to be some traction before end of 2022 when it comes to Canada. In terms of front end, as I was saying, 2023, we feel that they should be close to 25 ANDAs under our belt with a few more under the pipeline, which have been filed as well. So we think that would be a good time for us to launch our own label in the U.S. And by which time, we also would understand what are the Tier 2, Tier 3 kind of buyers that we should be targeting rather than going after very large buying groups, which might not happen in the initial period. I'll also give you a little background into our expansion plans. We are in the process of putting together premix bag line. This is a very niche area. I believe in India, only 3, 4 people are in this concept, and we would like to be one of them. And we feel that this could be completed by January of 2022 and we can start taking trial batches the next month onwards. We already have completed development of 7 products in the premix bag line. We are also working on the much larger CapEx operation of Phase 2 of our injectable plant, which will house 2 high-speed wire lines, which we've already placed in Bosch in Germany, 1 prefilled syringe line with Steriline in Italy, and a lyophilizer from Tofflon. All of these will start to come through before end of next year. We hope to have all of the machines and lines qualified and ready for commercial by early 2023. Once this is completed, we would be in a position to take up much more quantum of CMO projects in addition to all of the own projects that we will be doing, and we are also putting together the right infrastructure to take complex products such as amphotericin, liposome, propofol, enoxaparin, et cetera, that will be global projects as well because we also want to reduce our dependence on one single market, which even though our maximum focus is towards the U.S., we also want to make sure that there are additional lines of revenue happening in the coming few years. Finally, I would also like to touch upon the automation processes that we've been taking on, especially in terms of testing, manufacturing, documentary control, compliance, all of this. We want to make sure that we have maximum level of automation at the plant to the extent where we have a target within the next few years to become as close to paperless as possible. We are heading in the right direction. This is an initiative that is very much appreciated by the regulators as well, and we want to be ahead of the curve when it comes to that. That's most of the developments over the last few months. I will just hand over the floor to Mr. Muralidharan, our CFO, for a quick review of the numbers for the quarter, please.

Good afternoon. This is Muralidharan. Welcome you once again for this conference call. So the numbers are available with you for the couple of hours. The numbers, let me briefly touch upon. On all parameters, all ratios, the company has done well, be it the growth in sales which is 20% or gross margin or EBITDA, all the ratios are better compared to the previous quarter and the previous year as well. The Chairman has mentioned about the challenges in terms of transit, freight cost [indiscernible]. Fortunately, we have been able to pass on maximum portion of the increased cost to the customer such that our contribution margins are not suffered. And the inventory increase in the warehouses has helped us to realize some fixed sales and also convert them into cash. The profit margins have not suffered much because of the increase in freight and [indiscernible], but there are increases in assets because of this freight cost increase. For certain customers, you have talked of the freight, from CIF to FOB converted the orders that have increased even though the cost absolute terms have gone up, as a percentage of sales, it has remained more or less same in the 0.5% increase in the fixed overheads where it helped us retained the margins and improve the profitability percentages. With this, I would invite the investors to participate. And then we are glad to answer any questions.

And I think we can open the floor for questions now, please.

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

One thing that I observed was your gross margin improved Q-o-Q and Y-o-Y, like Q-o-Q also it improved by about 380 basis points. Any particular reason that you would like to point out for the gross margin increase? And is this sustainable? Like what should be the sustainable gross margin number that we should look at?

Okay. I would request the CFO to talk on this first, and then I will take it.

Thank you for the question. Actually, our Chairman is directly monitoring the products which are to be sold high-profit margin products. We are discretional in taking over the orders. And also the product mix has contributed to higher margins in the current quarter.

Yes. I would like to add actually a few lines here. As you know, there are 2 ways actually to improve your profit margins. One is increase actually the price at which you sell in the market. Other one is reduce the cost. Since we have been -- you know that we have been working from home, only except for the last 2 months that we are coming to the office, it becomes easier for me to spend more time on both, one actually on the markets throw Zoom, and the other one actually talking with our own people how exactly to reduce the cost, both have been happening. And earlier, I now used to talk on a day-to-day basis with my marketing team, which really has happened actually during this COVID disruption. As CFO put it, since I was able to involve in the whole process of actually marketing, starting from actually production to marketing, we were in a position to achieve better gross margins.

Okay. So sir, what kind of like number should we look at going forward for the gross margin, any guidelines?

Like we are very sure that we'd be able to maintain the current one. And going forward, I want to be actually one issue, which is very, very important. This is happening in the current markets. Without expand, as you know well, actually, the base effect also has come beyond the INR 1,000 crores. And we are sure of doing good business in some of the best markets of South America. But again, we have to create a differentiated business model, and we need to make a -- which means the travel restrictions has to be lift up. Otherwise, we are sure of maintaining the numbers which you have given now -- which we have achieved. If you're in a position to actually travel and work in the market, you are sure of achieving better results.

Okay. And then how much of our raw material is imported? Does the input depend on China, if you have a number?

I would like to tell because most of the time I used to tell this one, our business model is totally different from China. When most of the people are importing the raw materials from China, we are exporting formulation from China to Latin America as we have a front-end -- we have a front-end presence there. So we have not been importing much compared to other actually peers. The exact quantum, I don't remember. Our main business is more a formulation export from China to South America.

Okay. And then what is the component of U.S. sales for this quarter? I mean...

I would request the COO actually to talk on that one.

The split right now is 90% ROW and 10% U.S. It hasn't changed too much from last quarter. We see this trend continuing towards the end of the year as well.

The next question is from the line of [ Aashiesh Agarwaal ] from Pareto Capital.

Sir, I've had a question with respect to the emergency sale that we had recorded in the LatAm markets in the last 2 quarters. Now I noticed that in the press release, you've mentioned that those emergency sales have been completed. So do you see your top line getting impacted on account of that in the Q3? And how much was the contribution in Q2 for those sales?

To be honest with you, the quantum is not very high. And the advantage that created because of the emergency sale is people are -- especially the MOH in all these countries have tested our product and found out our -- the quality of the product. Although, it will take a little time for us to register products in Mexico and Brazil, this is something acted in favor of us to understand about the company and these products. Then this is not going to impact in a big way because the quantum is very low, as I told you first. Second, in course of speech, I mentioned about actually the sudden development, which has been taking place in Venezuela. We used to export in the region of like $300,000 to $400,000 to Venezuela, which has increased to $1.5 million in the -- in every month, $1.5 million every month. And that too, the money is coming upfront. Even now like $1 million, $1.5 million is in the form of advance. So if something happens in one market, there is another market to compensate actually that one. So we are not worried about the current actually growth. If we have to increase the growth in many folds, then, of course, the opening of the borders of the countries, travel restrictions are to lifted. That's it.

Sure. And just you mentioned about Venezuela suddenly having seen an exponential growth. Could you just dwell into the reasons for that? And do you anticipated that [ in the rest of the year going ]?

I hope you are aware the crude prices have gone up, and I think it stands somewhere at $85. You know what was the crude price at one point of time? If the crude price go up, and the best countries to be benefited are the one actually which produces oil or crude. Venezuela is one of the country that produces maximum crude actually in the whole of western hemisphere. That really helps. In fact, there was a [ minus 24% ] growth in the past. And now they predict plus 2% for the next year.

Wonderful. And you mentioned your margins, obviously, are going to -- will maintain it, possibly expand it going from here. And if I just understand it right, I mean the next year, you have many plants and products coming on stream. So I mean, can we anticipate a very robust revenue growth coming in next year as well?

I want to be very realistic because it's true that we are coming with a lot of plans. But as you know well, the plants are long term. There is nothing in the form of you can complete the project immediately and then complete the registrations also very fast. As you know well, the entry barriers in the regulated markets is quite high. We are 100% sure that we are going to grow well maybe 2, 3 years from now in a big way. But the next 2 to 3 years, we'll have to concentrate more on the ROW market. The advantage is probably our onco tablets will become operational 1 year from now. And there are markets where we have already completed the registrations of onco products by using our company as a loan license in another company. That will -- as I told you in course of my actually speech, that would help us actually to establish our brand presence in Central America. The same way, we have been manufacturing CNS and CVS products now. We have been registering also this differentiated CNS and CVS products. Again, we will start brand marketing for that particular area. Injectable is one area which has become our major portfolio of products, both in terms of regulated markets also for the ROW. We have around 80 to 90 products. And out of which, 60, 70 products have been registered in 8 to 10 countries in Latin America. So we'll start the hospital division to take care of actually that particular domain. So we foresee a good future. And I don't want to commit that the projects will be completed and we will be in a position to do it in a big way because of certain reasons where none of us are actually clear about this pandemic to endemic or will there be any other thing which would create issues. And we also don't know when exactly the shipments that are going to actually various countries that created actually the transit time and the ocean freight in a differentiated way. So when the external factors are not in a position to -- when we are not in a position to understand it, the variables gets increased. So I don't want to give you a commitment. I want to be very realistic. We will do well, and I don't want to give you something in the form of like we will do extraordinary well. We definitely will do well.

Got it. I just question -- one last question, sir. You have a very strong robust cash balance of over INR 560 crores, and you've also been generating strong cash flows, and your CapEx is much lesser than your current cash flows are, I mean current cash balance. So I mean, do you have any plans in terms of some special dividend or some buyback? I mean, what is the thought process on those lines?

Yes. In fact, to be honest with you, it's true that we are open to any meaningful acquisitions that we also tried once when we -- and it was about to actually get completed. And to their luck, and they got one product registered, and we were about to sign the definitive agreement, they have backed out. This is an API facility, U.S. FDA facility by an American company. Now there is one more opportunity of a U.K. MHRA factory. We are in discussion with them. We are always open for this type of meaningful acquisitions. That's true. Second, coming to dividend, we'll have to discuss with our Board of Directors and take a decision. And all these projects which was taken of is a question of time before we complete everything. Some may actually takes 1 year, 1.5 years, some may takes 1 year. After that, the registration starts. So we are all -- this is around in the right direction. This is something similar to what the big boys have done it. We are trying to emulate actually their standards here, be it in the form of product, be it in the form of actually facility we are just following it up what the big companies have done, what they are currently doing in all these countries where they are making it big. We may be in the periphery now. We assured that we will also get into the core in the short to medium time.

[Operator Instructions] The next question is from the line of [ Vedika Singh ] from Monarch Networth Capital.

Sir, can you articulate on the thought process on the CRO business, what are the inroads you are getting from the client side? And what is the outlook on this business?

Okay. Thank you very much. I hope you are aware that recently, we received U.S. FDA approval without any observation after they completed the online inspection and on-spot inspection, and we are expecting the EIR from U.S. FDA. And we got it actually by using a third party who was filed dossier in U.S. And our main purpose of creating the CRO is not to go for actually other companies' work. We have enough products in the pipeline to do the BBA studies for our own products, mostly in midsized markets and the bigger markets in the long run. Immediately, we will think of registering maximum products in Chile, Colombia and Costa Rica, where we know we have very good opportunities to sell the products at a higher cost, although the markets are not as big as U.S. and Brazil and Mexico. So this is more of like 70%, 80%, we will use it for our own products, maybe 15%, 20% when we have capacity, we'll use it for other companies too. Is it okay, madam?

Yes, sir. Okay, sir. I had another question, sir. Could you please throw some light on what kind of margins can we make on this business?

What kind of margins we can make on?

The CRO business.

CRO business, as I told you, margins, we'll have to talk of margins if I do it completely based on other people's job work. When we do it actually for our own company, it enhances the value to our products. If I'm selling a product, even in smaller geography, say, with a profit of 30%, 30%, 40%, that will increase by 15%, 20% because of the bioequivalence and bioavailability. And the doctors are -- actually, the chemist to look at our products, the moment they understand that it has been actually -- this has been completed -- is in fact completed the BBA studies means, which is equivalent to the innovator's molecule. So that will enhance the -- this thing, selling capacity of the product.

Okay. Okay, sir. Sir, can you just throw some more light on how the business is shaping for Caplin Steriles beyond U.S. and also by when can we reach the peak potential revenues post the Phase 2 CapEx completion?

I will ask the COO to give a replay on that.

Yes. So today, 99% of our revenues is from U.S. And in fact, we are very much focused towards the U.S. As you all know, over 50% of the entire world's health care spend happens in that one country. So obviously, our primary focus is on the U.S. But at the same time, many of the products that we are getting into now also has a very decent market outside of the U.S., especially Latin America, Europe, Southeast Asia, et cetera. So we will be looking at global dose scale launches only going forward. While I don't have a set number in place on what would be split between U.S. and non-U.S. sales, general thumb rule from 3 business companies, ones that have done well in the past, especially in injectables, this looks to be around the 80-20 kind of first hit. When it comes to peak potential, I would like to describe it in 2 manners. Number one is with the pipeline of over 45, 50 ANDAs that we have in our overall development portfolio, we would certainly require most of this CapEx expansion that we are planning on, but that might happen probably in about 4 years, 5 years from now. In the meantime, being under the same FEI number, which is basically the registration number in the U.S., any new line that we add is automatically approved because it comes under the same quality management system. So for the short to mid-term, we will be approaching our existing partners and potentially new partners for contract manufacture business as well in the U.S., which would be a good generator of cash flow also until our products start to take up most of our capacities online. So that is the idea going forward. And also, when it comes to injectables and sterile products, we will be very differentiated compared to other peers because we will have products in vials, pre-filled syringes, premixed bags, like vials and ophthalmic. So apart from ampoules, which doesn't really have too much of a market in the regulated space, I would say we would pretty much we have in the entire basket of offerings when it comes to hospital-related products.

[Operator Instructions] The next question is from the line of [ Nikhil ] from Galaxy International.

I have a couple of questions. So one is related to Caplin Steriles. So I wanted to understand how much equity stake do we hold in Caplin Steriles. So is it 99.9%? Or is it lower than that?

So Caplin Point, the parent company, holds 75% stake. I mean, right now, it might look as 99.99%. But for all practical purposes, you can assume that eventually, the investment partner will hold 25% because of CCPS. So at the time of exit, it will get converted into a 25% stake for the partner. But as it stands right now with CCPS, so it doesn't really show up. But you can assume that it's a 75-25 kind of a breakup.

Okay. Second point on this one is Caplin Steriles actually made a loss after deducting all the R&D expenses and all for last year, right? So FY '21 we had a loss. So when do you expect that Caplin Steriles will be able to turn to profit, let's say, based on the current plan given that we are in a huge investment phase? So will it be a little bit more time or maybe in FY '22 or '23, it would be in profit?

So we want to take it one step at a time. The next target for us is to make sure that we achieve cash flow breakeven that we feel could happen within next year itself. But when it comes to overall profitability, we are probably another 2 years away, and that is specifically to do with the number of filings that we do because we charge off all of our R&D expenses and stuff. This constantly -- when it comes to a pure P&L point of view, it becomes a drag on our bottom line. But this is an industry where it's a long gestation period. And once our right kind of product mix and once our slightly more complex products start to get approved, then there's no looking back for us. And today, if you...

Let me add a few words actually here. It may look like a bit challenge. It's true it's a challenge. But again, if you can handle this challenge effectively, this is going to open up a great opportunity. The reason being, if you look at this space, there are very few people of our size who are into actually injectables, especially to U.S.A., with ANDAs of our own. Remaining 2, 3 companies which have got the U.S. FDA approval, it's more of actually [ OER ]. They are totally depending on contract manufacturing. Today, injectable facility for U.S. market is something like actually a infrastructure project. We have to invest a lot, wait for a long time. What is important actually is the wherewithal. Today, we are not borrowing money from any institution, and we are not leveraging the debt. Everything has come from the internal accruals. And of course, the 25%, which they have invested, they have been after us. And then eventually, there was a very good actually deal in the form of -- for a pre-revenue facility. They valued close to INR 900 crores, and we have also accepted it. So we are very confident that there's going to be a great opportunity where it's a question a few years from now. Yes, please. Is there anything you want to ask on this?

No, I'm pretty clear. So I'm also [indiscernible] about the U.S. entire business, [indiscernible] are moving actually. So -- and the partnership that you have. So it's definitely great. So just maybe a little more question. So we -- so in the press release it was mentioned that we have 45 ANDAs that are under development, right? So I just wanted to understand, let's say, the breakup of those ANDAs because I also saw that 5 of those ANDAs that we are looking to file are in the ophthalmic range. But I don't understand -- I don't think that we have a manufacturing facility for ophthalmic products. So first question is that from a ophthalmic product perspective, would we be actually doing contract -- getting the products contract manufactured or is there any plan for doing it in-house? And second thing is that on an overall 45 ANDAs registered, so if you can have some breakup, let's say, simple products, complex injectables that we're talking about. You are also doing some liposomal or amphotericin and some of these other complex products. So what would be the kind of ratio or mix of those? The development time line, complexity and the investment is also very, very significantly different as is the returns?

Yes. So we actually do have ophthalmic line in the same facility where our injections are being made. It is actually called the Line 3, and we've had it for the last 2-odd years, more than 2 years actually. Now we've already filed ANDA from this line. We were supposed to get an FDA audit sometime early last year, but because of COVID, that hasn't happened, but we are expecting that sometime in the near future. So yes, we don't do any -- we don't get our product contract manufactured outside. Everything is done in-house. That would answer your first question. In terms of the complexity of products, see, as we speak today, we have close to 24, 25 products that are ready for scale up and exhibit. Now because we only have 2 vial lines, we need to do the right kind of balance between launching our existing products, continuing to focus on our revenues and cash flow, while at the same time, also make sure that we have a healthy pipeline of products coming in for the next year and the year after that. So to answer your question, I would say that probably 3 out of every 10 products that we do are complex in nature. They might be complex by way of manufacturing, development, by way of scarcity of API, et cetera. So in many areas, you could have complexities in terms of U.S. products. When it comes to ophthalmics, our overall pipeline, out of the 45, around 9 products are in ophthalmics space. So you can say that the injectable is obviously our higher area of focus. But because ophthalmics are also manufactured in a similar manner because they're all sterile liquids as well, it would be useful to have another space -- sorry, another manufacturing line in the same space as well.

Right. Definitely. So just a follow-up on that. So out of these 45 ANDAs that are under development, so are we saying that almost everything is injectables plus ophthalmics? Or is there some oral capsules, IR, ER, [ HR ], kind of things that we are not doing?

So this plant, we only do sterile products. So it is all injectables and ophthalmics. When it comes to our new expansion project that is our oncology space and stuff, we are getting into overall solid dosages in the first phase and then injectable -- oncology injectable in the second phase.

Right. And you are also setting up the PFS as well as the line for that as well? Mr. Chairman...

Right. All of that falls under Caplin Steriles. Yes.

All right. Okay. Okay. So besides this, sir, if I can take the liberty and maybe ask 1 or 2 questions on Caplin.

Please. Please go ahead. Please go ahead.

Sir, I just wanted to understand, right, so we are in-sourcing a lot of formulations from China, right, and actually exporting it to Latin America to our own distribution channel. Have you faced any problems in terms of supply from China given that there are issues right now? While I understand that formulation may not be, let's say, impacted to that extent. So still your views and inputs on that? So that is question one.

So far, so good, except the issues that we face in India, you know, in the form of ocean freight and the transit time. This is one of the same. Today, the freights have actually become very, very high. It's not only confined only to India. It's also happening in China. The second issue is time lines, I would say, in fact, it's lesser from China to South America. The third issue, they are now talking of power cut and other things. But in fact, our office people have been telling that it's not going to impact us in a big way because we are not manufacturing with smaller company. The products that is being manufactured from the bigger companies, they always manufacture the products for 1 year at a time. In fact, this was being taken care of actually by Mr. Vivek at one point of time. He will be able to throw some light on that. Vivek, go ahead and tell them how exactly the structure operates in China.

Yes. So I think as always the case, when it comes to pharma and food, these industries are given first preference when it comes to allocation of power. So most of our suppliers, they are top 3, top 5 companies in China. So they've been able to manage their resources very well. So several things. So far, so good, we've not seen any sort of slowdown or delays or anything like that. But the more important point is we, at all points during the year, have 4 to 5 months, sometimes even 6 months' worth of ready stock at China. Now because most of the products that we do, almost all the products that we do have 36 months shelf life, this is something that we can afford to have. And the more interesting part of this is we don't pay a single dollar as an advance to any of these stocks. So our clocks are ticking only after we ship the goods out and then we pay them 60 days to 80 days from the date of the shipment. So because we plan so much in advance, we've not really faced too much of an issue in terms of nonavailability or scarcity of product or anything like that. But we watch this space very, very closely. Obviously, there is no such thing as we know everything about the markets and all that. But having our direct presence at the country definitely throws a bit more light compared to what we read and hear about in the media stuff every day. So we are very careful. We watch closely, in fact, with our partners on an almost daily basis to make sure that we're not let suffering at any point.

And I would like to add one more thing here. The transit time, as I told you before, which has been actually increased from 30 to 40 days to 3 months, today, what is considered as actually an issue, which will become a great opportunity maybe after 1 or 2 years when the export of vaccines gets reduced. We used to have $7 million to $8 million in the form of actually stocks in transit. Today, it has increased to $20 million, $22 million, which means what will happen suppose if we get actually an additional cash flow of some INR 200 crores for the current year, when the issues get -- when we get issues in the form of actually this transit time, which is happening because of the export of vaccine, when that gets reduced, then automatically, the lead time will get reduced, which means the opportunity for having another INR 100 crores, INR 125 crores for that particular year as a cash increase is a real opportunity. This is for sure. These stocks, which are next to the -- next to the customers, will get actually encash very fast. That's how last year, no, we made more money compared to the previous years. Last year, if you look at our balance sheet, we had an excess cash of INR 300 crores. This kind of a situation will happen one day when this lead time gets compressed.

Yes. Sure, sir. Sure. I understand that. So just another follow-up question on the China thing. So when we are doing the -- or, let's say, importing from the Chinese formulation company, so do we have a backup from the Indian companies also given that India generally also has a lot of good manufacturing capability on formulations?

Can you please come again, sir. I'm sorry, I'm unable to hear it properly. Can you please come again?

Yes. Sir, what I was asking was that, let's say, we are importing from China, from the Chinese top players. Do we have a backup supplier from India for most of our big formulations that we are exporting?

Okay. This is definitely -- we always keep a backup. And -- but again, I would like to convey one important thing. Today, 70% of the raw materials are imported to India from China, which means anything that -- we assure that we are all actually interested in getting into key starting material intermediate and API. That's the only way we can go for an import substitution, which cannot happen overnight. And in our case, I would say this is much, much actually better than an importer of raw materials because this is export of products from China to South America, it is like an export of any other person -- import of any other person from South America. So that's not going to be impacted definitely. Even if that happens, we are sure we'll be in a position to do it in India. And I'm sure this is not going to happen just like that because the independence of raw material, especially the key starting material and intermediate is quite high in the area of pharmaceuticals in India. And the whole world depends on the key starting material, whether we like it or not, that's a fact of life. So it's better to be an exporter of formulation from China to South America, which will not impact because even if there is some issue between India and China, they -- it's not going to impact actually the export of products from China to South America.

Mr. Nikhil, may we request that you return to the question queue for follow-up questions as there are several participants waiting for their turn? The next question is from the line of Harshal Patil from Sharekhan.

Sir, just have some couple of questions. Basically, with respect to, first, the CapEx spend, sir, if you could just share what is it that we planned up for FY '22 and '23?

As I told you before, one project, which will become operational in '22, '23, is our Onco Tablets.

Right.

And initially, that -- we'll be in a position to export to the existing markets where we have completed the registration. And the rest of the products is more of actually a work in progress. And most of the machineries for these projects have to come from Germany and Italy. And the lead time for importing this machinery itself is between 15 to 18 months, sometimes very narrow. 1 or 2 missions can come in 12 to 15 months. So that means we don't foresee any project other than this Onco Tablets to go on stream in '22, '23. Then there is one opportunity. If at all if you acquire a company in the form of inorganic growth, then there is an opportunity for us to get into some regulated markets.

Okay. Okay. Sir, the Onco Tablets, what can be the investments? If you can just give some flavor of what is the investment?

The Onco Tablets, the facility where we are going to house Onco Tablets is a place where we will also install injectable machinery in the second phase. As a whole, it would cost us INR 100 crores, but the first phase will be in the region of INR 60 crores to INR 65 crores.

Okay. Okay. Got that, sir. Sir, my next question basically was, sir, in the Q1 call, we had mentioned of some guidances and some growth outlook wherein we said that we would be looking at doubling some revenues on the LatAm over the next 5 years and also look to touch about $100 million of revenue from U.S. over the next 5 years. So sir, considering these developments and changes, do we stick to this guidance now or any changes?

Yes. We are very sure about it. 5 years from now or 6 years from now, we are sure of doubling our sales, which is definitely a possibility.

Okay. Got that, sir. And lastly, sir, with the Mexico and Brazil thing that you said, of course, subject to kind of removal of travel restrictions, but would it be safe that -- safe to assume that FY '23, you could look at some bit of nominal revenues flowing in from Mexico and post that maybe sometime in '24 from Brazil?

This is the only issue. Like when I say even if they lift the travel restrictions, we must be in a position to work in the market. One is reaching the country, the other one is entering the market. By reaching the country, we don't get business. Only when we work in the market, we'll be in a position to create a market differentiation. Today, what's happening, all the big companies, they know they go for the creamy layer in the sense because of their extensive reach in the form of starting from key starting material actually to the front-end persons. They are able to control actually the prices. And they are in a position to get into the tender where it's not easy for us to compete at this juncture. We are also trying to create everything the way in which actually the big boys have done it. But it will definitely take at least 3, 4 years for us to reach to that level. Until that period, we have to concentrate more on the private market. When we go for the private market again, there, we look at the Tier 2 and Tier 3 markets where the profitability will be more, although the volumes are lesser, which means one of us actually have to go and work in the market. These are things which has to be created by us because we only know how we have created the differentiation in South American markets, although the markets are smaller. At the end of the day, Mexico is very close to Central America. In just one hour drive -- one hour actually by flight from Guatemala to Mexico. We are -- I've been to Mexico several times. And the only issue today is the COVID pandemic which, of course, I'm not in a position to commit more when exactly we'll be able to do something in that particular market. We are positive. It's not going to go like this forever. The pandemic has become endemic. And there's a question of maybe 1 year. After that, you will be in a position to work in the market also without any hustles.

The next question is from the line of [ Preetam Moitra ], Individual Investor.

Yes. So I had just one question. So at the current portfolio and the current markets, which Caplin Point is, how many years does Caplin Point sees so-called saturation point?

You mean you want us to know -- you want to tell us about the saturation point in the current market where we are in today?

Current market as well as the portfolios. Suppose that you are not expanding to any new market and you don't want to, let's say, innovate new products. So how long would something like that last?

What Vivekananda said is expansion is life, contraction is death. We don't actually believe in saturation. When you go to a market, there are so many ways actually to do business as you know well. And first, the priority is to get into actually markets where we will make a sustainable actually revenues. And that comes in the form of generic business. If you look at the key U.S. to the smaller markets, it is the generic that really sells along. So the only difference is generic in ROW, you will see Tom, Dick and Harry where whereas in U.S., you cannot see small player or mid-sized companies to enter into U.S., that too into injectables. So the current market is to the generic also. As we increase the number of generics and more of a complex and specialized product, there it's a space. One is generic, then branded generics and brand marketing, and it becomes easy for us to get into brand marketing without even having deeper pockets because of the fact the geography is smaller. If you take oncologist in a market like the biggest market and the biggest revenue ANDA for Caplin Point is Guatemala. The population is 15 million to 16 million. The number of oncologists are maximum, maximum is 50 to 55. To meet this 50 to 55 oncologists, you just need one representative. And that one medical representative will take us from India. It becomes all the more easier because people have already met the oncologist in India, what they need is only one interpreter who has to work with them. In the same way CNS and CVS products, as I told you, currently, CNS products and CVS products, there is an increase. The maximum amount of diseases [indiscernible] in the world, first, it is oncology -- I'm sorry, onco, I mean, cancer patients, followed by CNS and CVS, these 2 areas. And CNS and CVS again, is a specialized area and the number of doctors are few and far between in the geographies where we are today. So we are opening up that area. We are already in regulated markets with injectables. And we also have our presence in ROW injectables also. All put together, that itself actually creates a basket of more than 100 products. So when you go for actually 50 to 100 products in this markets, the moment we complete the registration of 50, 60 injectables, that opens up an avenue reaching to the hospitals, private hospitals and clinics who dispense the injectables. So like this, what is important at the end of the day is the model that we create. There is nothing in the form of saturation, I think. Saturation, I don't know, it's very difficult for me to understand the concept of saturation. Maybe there will be a saturation. But at that time when a product gets saturated, you will have to move to the next product or the next level of marketing. That's what I feel. If you want to ask any other questions, please ask.

One last question, sir. You say that the shipping costs have gone up by like 4x. So how much of your net sales does it eat up exactly?

It doesn't -- see, this is the advantage that we have today. If I go on actually appoint an importer like most of the companies of our size, then all these problems persist and exist also. The reason is my importer will say that so and so company from India and so and so company from China has come here and told us I see that will sell the product at a lesser rate. But when we have become our own importers, which means we are controlling an end-to-end business model in the countries where we are present today. And there is an increase, we have an opportunity in the form of actually percent mix to the customer with a huge range of products. When we increase the products price, they will not actually question us because any product which is going to be available in that part of the world has to be increased or either he will increase the product and survive or he will actually vanish from the market because you cannot sell at lower prices. If you sell at a lower price at a time when you are actually cost at which you manage the company increases. How is it possible for it, sir? So what is important? Again, it is the model actually which helps you, not the product here, especially in generics.

As there are no further questions from the participants, I now hand over the conference to Mr. Vivek Partheeban from Caplin Point Laboratories for closing remarks.

Thank you, Vineet, and thanks to all that have participated in the earnings call, and we do hope that we stay in touch for future interactions as well. And we wish you all a very happy and prosperous Diwali and a safe Diwali.

On behalf of Monarch Networth, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.