Eris Lifesciences Limited (ERIS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Eris Lifesciences Q4 FY '21 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. V Krishnakumar, Chief Operating Officer and Executive Director of the company. Thank you, and over to you, sir.

Good afternoon, and welcome to our Q4 conference call. I'm Krishnakumar, and I'm happy to share the highlights of the quarter as well as the entire year with you. In terms of financial highlights, I'm happy to report that our Q4 stand-alone revenue grew by 11.3% year-on-year to INR 257 crores and our Q4 consolidated revenue grew by 11.9% to INR 278 crores. As per AIOCD, in quarter 4, the Indian pharma market registered a 5.3% growth, bringing up the FY '21 growth to 2.1%. As expected, most of the growth gained from chronic and subchronic therapies, which grew by 7.7% in Q4 and 5.7% when you take overall FY '21. However, the AIOCD data in Q4 showed a growth of 2% for Eris, which was on account of a high base in the cardiometabolic and VMN segment in quarter 4 of the previous year. We had 2 new launches in the quarter, namely Zayo, our brand was sacubitril and valsartan, an important product for managing heart failure; and Bricet, our launch in the CNS segment for the treatment of epilepsy. This is in addition to several other important launches we did during the year. After a gap of several years, we launched more than 10 new products, including combinations in FY '21. As may be expected, these new products, until they ramp up to a reasonable scale, bring with them an increased cost of goods sold. As a result, stand-alone gross margins in quarter 4 were at 80.5% versus 85.7% for the same period previous year. We expect the gross margins to start ramping up starting the current quarter as the new products ramp-up in scale, and we are able to start realizing volume benefits in procurement and manufacturing. The consolidated gross margin for quarter 4 stood at 78.3% versus 85.1% in quarter 4 of the last year. Our quarter 4 stand-alone EBITDA margin expanded by 486 basis points to 36.6% versus 31.7% last year. Our quarter 4 consolidated EBITDA margin expanded by 290 basis points to 34% compared to 31.1% last year. This expansion was driven by 2 factors: a 15% increase in MR productivity during the year and pandemic-driven cost savings. Our consolidated effective tax rate for Q4 was 19.5% of [ CBT ], higher than 8.5% in Q4 of last year as the contribution to Guwahati to our quarter 4 sales was relatively lower compared to the full year contribution, which is at 74%. So we had a significantly higher proportion of third-party production in quarter 4. Stand-alone net profit for quarter 4 was INR 69.35 crores, which is a growth of 20.8%. Consolidated net profit for the quarter was at INR 68.2 crores, up by 21.3% year-on-year. Now I will recap the highlights for the full year FY '21. FY '21 was a game changer for the company, wherein we registered robust improvement across all operating and financial parameters. We were able to harness the power of our fundamental business pillars that is leadership brands in chronic super-specialty, a strong cash flow generating business model, a debt-free balance sheet, and our consistent focus on operational excellence to successfully navigate what has been one of the most challenging environment ever. Our business model of building strong and sustainable brands paid us rich dividends during this year during the pandemic period when MR-doctor interactions have been severely constrained. The prescriber preference shifted to established incumbent brands during this period. This has augured well for us, with 7 out of our top 15 mother brands being ranked among the top 5 in their respective categories. We made a seamless transition to the digital era in FY '21, with the conduction of more than 2,500 digital interactions, covering more than 36,000 medical practitioners. We continue to maintain leadership in prescription ranks with super specialists. As for the SMRC audit, we ranked #3 among diabetologists, #4 among cardiologists, #3 among neurologists and #3 among gastroenterologists in our covered market. As for the AIOCD data, I'm happy to share that Eris grew at 6.2% in FY '21, outperforming the covered market by more than 2x. This is the third consecutive year of Eris outperforming the covered markets and the Indian pharma market. We had 5 significant new product launches this year. The first of them is Gluxit, our offering in the strategically important dapagliflozin molecule, which is an SGLT2 inhibitor in oral diabetes care. This was among the first generic versions of dapagliflozin to be launched. I'm happy to share that Gluxit ranks #1 by volume and value among all 30-plus versions of dapagliflozin in the market. The brand ranks #1 by volume and #3 by value, including the innovator brands. Gluxit showed an exit run rate of INR 2.5 crores per month sales in March '21. Our other new launch, which is called Zac D, is a unique combination of zinc and vitamins A, C and D in a convenient once-a-day chewable tablet. Rivalto was launched in the recently [ off-site ] rivaroxaban molecule in the antithrombotic segment. I spoke about Bricet and Zayo earlier. I'm also happy to share that Zomelis, the Vildagliptin brand we had acquired in December 2019 has grown by nearly 4.5x in sales run rate since acquisition. By value, Zomelis has consistently ranked #1 among the 80-plus generic versions of Vildagliptin, and it ranks number 3, including innovator brands. Zomelis' market share in value terms has increased from 7.3% in December '19 to 10.9% in March '21 among the generics. Zomelis had an exit sales run rate of INR 4.4 crores in March. We have also reduced the COGS of Zomelis by more than 500 basis points on account of manufacturing efficiencies at our Guwahati facility. In terms of financial highlights, our FY '21 stand-alone revenue grew by 8.7% to INR 1,109 crores, INR 1,109 crores for the year, and our consolidated revenue grew by 12.8% to INR 1,212 crores. Stand-alone EBITDA margin for the year increased by 278 basis points to 37.6% and consolidated EBITDA margin for the year expanded by 123 basis points to 35.5%. As I had mentioned, this was driven by an increase in MR productivity and pandemic-driven cost savings. The yield per man per month for our stand-alone operations increased to INR 4.5 lakhs per month, up from INR 3.9 lakhs per month in the last year, which is an increase of more than 15%. For the full year, taxes remained in line with 10% of PBT. Our Guwahati facility contributed to 74% of total stand-alone revenue in the year that went by. At the net profit level, stand-alone net profit grew by 20.4% to INR 351 crores and consolidated net profit grew by 19.8% to INR 355.1 crores. Our consolidated earnings per share for the year has grown by 21% to INR 26.16. On the balance sheet side, our strict management of working capital meant that stand-alone debtor days have reduced to 37 days in FY '21 from 50 days in FY '20, thereby beating our guidance. I would also like to inform you that starting April 2021, we have moved back to the 721 days credit cycle with our stockists. We continue to have a cash-generating business model. Our stand-alone operating cash flow for the year was at 95% of EBITDA and our stand-alone free cash flow for the year was at 81% of EBITDA. In terms of consolidated numbers, consolidated operating cash flow was at 87% of EBITDA and consolidated free cash flow was at 81% of EBITDA. These ratios remain among the best in the industry. Our total treasury investments as of 31 March stood at INR 417 crores, including some fixed deposits that are accounted as part of other financial assets. This year, we have paid and declared a dividend of INR 5.5 per share, implying a payout ratio to 21% of consolidated net profits. Going forward, we intend to share a minimum of 20% of our net profit with shareholders as dividends on a yearly basis. FY '21 has kickstarted the next leg of organic growth momentum at Eris, which is expected to be maintained well into the future in the next 3, 4 years. There are several factors contributing to this outlook. Firstly, we have a rich pipeline of new product launches, driven by upcoming patent expirations in the cardiometabolic and allied segments. Secondly, our market standing and diabetes enables us to take the lead in the management of post COVID early onset diabetes, also referred to as unmasking of diabetes. Gluxit and Zomelis are highly strategic products, thus, for us in this regard. Thirdly, we are expanding our coverage of cardiologists and consulting physicians by up to 50% in the next 2 years. In addition, we are making investments in technology in order to further improve our sales productivity. We have recently launched a product called Zomelis, which is basically a combination of vildagliptin and Remogliflozin in the diabetes space.

Licensed from Glenmark.

The product Remogliflozin has been licensed from Glenmark. In order to complement some of these organic growth initiatives, we continue to look for high-return opportunities in in-licensing and by way of acquisitions. So that was a summary of the quarter and the year's performance from our side. Now we are open to take questions.

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

Sir, first question -- a couple of questions actually. One on the gross margin side. So the gross margin, both on stand-alone and consolidated has gone down, plus we also see the staff cost also going down. So while you maintained your EBITDA margin or improved, but it is coming at the cost of gross margin, what -- is there any one-off? And how do we see that going forward? And same is the case with staff costs, please.

So let me take the question on gross margin first, Prakash. So the base business, which is basically the regular products that our good brands, our top 15 brands, if I take that as a continuing portfolio, that portfolio has a gross margin in excess of 85%, right? So on a quarter-on-quarter basis, the impact that you see is basically a function of how much third-party production has accounted for in the quarter because third-party production comes with a lower cost gross margin, which is why we continue to do as much production as in-house as possible. So in quarter 4, a couple of things happened. One is that whenever we launch new products, the typical trend is that we get the new products typically through third parties, and we launched those products. And then as those products scale up over time, we pull the production in-house, and there are several such examples of that in the past. So a third-party product, which is a new product, goes through a cycle where it may start at a very low COGS. But -- and then eventually, it comes into the system and the cost comes up to near corporate average levels. And we have several examples of products where, let's say, over the last 1 year, the COGS have improved. In some case, it is 1,000 basis points. In some cases, it's 2,000 basis points. In fact, we have 1 product where the cost has improved from 65% to 30%. So this is a natural progression of new products in our system. And in quarter 4, the salience of new products was higher. So that is one part of the reason. And the second part is basically by the -- by mid-February, it was becoming very clear to us that this COVID second wave is turning out to be a big monster. And having gone through the experience of last year, we just wanted to be extra cautious and not place the complete production load on our Guwahati. So we decided to take that extra step because we have the luxury of doing so. So we decided to take a bit of it in COGS, and we activated some of our third parties to build up enough stocks and redundancy in the system. So that, a, we are able to build up inventory; and b, we reduced the dependence on Guwahati. So for your information, while Guwahati accounted for 74% of our revenue this year. In quarter 4, Guwahati's incidence was only 60%. So that 40% of our production in Q4 came from third parties, which is something that has contributed to the higher COGS, but that was a conscious call that we have taken in quarter 4. And we are -- it is something that was onset right in this quarter because for the month of April, Guwahati was back to being 80% of our sales. That was as far as the gross margin is concerned. I think employee expenses...

I think, we closed our one division last year, which was the IVF division. So that's the effect which you see on a quarter-on-quarter basis and cost of impact.

Okay. Understood. And 2 quick ones. One is what is the MR strength now? So is there any change versus the last 1 that you disclosed, which was 2, 3 4, 5.

So there has been a change. So as Amit mentioned, we closed on 1 division. And then in our acute cluster, we combined 2 divisions into a single division. So our MR strength, we have also published it, which is a stand-alone level, it is 2,036.

2,000?

36.

Okay. And your -- the OTC generics is?

Pardon?

Your OTC generics as how many, MRs?

[ 250 ], too.

Yes. So it is approximately 250.

Okay. Understood. And lastly, in the balance sheet, you talked about investments, which is a large number. What is the kind of that investment, if you could highlight? Is it INR 0.2 million?

It's just added to -- Prakash, Sachin. So what we have done is, like, we have passed around INR 85 crores in [ MP ], which is we are trying to take lesser riskier allocation to FD and AAA-rated debt funds and all. So basically, it's all that. We don't invest in equity, that is at certain policy. And around INR 40 crores is...

That INR 243 crores is largely FD and AAA bonds, right?

Yes, yes. It's only that. It's entirely that. There are no equity investments.

The idea is to have capital production first.

[Operator Instructions] The next question is from the line of Abdul Puranwala from Anand Rathi.

Sir, my first question regarding the day-to-day. So as what is mentioned in the presentation, the day-to-days have significantly come down in FY '21. So for next year, FY '22, how do we look at the overall working capital and the cash conversion cycle? Would it largely remain at where it is in FY '21?

So Abdul, what happened in FY '20 and the correction that has happened during the course of FY '21, because clearly, some extended time lines we gave to our stockists, which we pulled back now. And so that is why we consciously come back to 37 days. From April, as I mentioned, we have gone out to the 721 norm as well. So that lever is also being closed now. So while I'm unable to give you a specific number, I would only imagine that the situation would improve from here on. That's a very clear expectation that we have.

Sure, sir. And the second question is with regards to the generics share of Zomelis. So sir, as mentioned in the presentation that the generics still account for like 67% on the volume front. So any reason why this ramp-up has been quite slower as compared to -- or how is the innovator you're trying to retain the market share? Because my sense was that for a year, generics should ideally have close to 90%, 95% at least on the volume side, considering they are much cheaper, but the volume somehow doesn't look to ramp up that shoot-ly for generics.

So Abdul, this is typically a chronic business, where prescriptions do not change that easily That's what has -- what everybody knows about the chronic business. One, the patient is put on a drug on a brand. He remains loyal to that brand for a longer period of time. And unless and until there is a solid reason, the change doesn't happen. One better way of looking at how the generics is ramping up about how much is the percentage of growth they are taking. So if you look at from that delta and almost all the growth which has come has gone to the generic mass.

Sure, sir. Understood. And just 1 final, if I may. And this would be, again, on the gross margin side. So I understand the new products would have low gross margins because of the sourcing, which has been done from third-party. So I would like to understand whether those were specific to products, which were launched in Q4, sir? Or we had seen some bit of an impact in the in the earlier 9 months as well because of the launches, which were done earlier this year?

Yes. So Abdul, new products do come with a lower gross margin initially. That is a fact. But new products alone do not explain the Q4 gross margins. So we had new product launches in Q3 also, but the gross margins were better. So in Q4, as I explained, we had a dual impact. One was the new products. And the second aspect was that we consciously sourced more from third parties, even in our regular products. Because of the upcoming lockdown and so on, it was clear that there are going to be hindrances. So we thought it is wise to take a bit of a haircut and not place the complete load on Guwahati. So even in our regular products, there was a step-up in third-party sourcing, which is why our third-party component in Q4 was 40%. So it's a dual effect, and it was a conscious call.

[Operator Instructions] The next question is from the line of Sangam Iyer from Consilium Investment.

Actually, I missed the early part of the call [indiscernible]...

I'm sorry to interrupt. Your voice is quite muffled.

Is this audible now?

Yes, and now it's fine.

I think your voice is quite hopping.

Hello? Is it audible?

Yes.

Okay. I just actually wanted to understand the outlook for FY '22. Given the uncertainty of the second year and now possible for importers that people are talking about, how should one look at the strategy from Eris' perspective in terms of, say, your margin profile, given that you have been proactive in Q4 and moved a lot of production back to third parties so as to make sure that need the whole process is smooth? But going into this year with uncertainty on this pandemic, how are you looking at the margin profile and the growth prospects for the company?

So Sangam, we have given a 15% growth guidance for the year, both on top line and bottom line, and we stick by that guidance. We -- given the business that we are in, where 91% of our portfolio is lined up in chronic and subchronic, we have been resilient to the pandemic in FY '21, and I expect that to continue in FY '20 2 as well. There are certain products we have in our portfolio, which will actually lead to growth going forward. So I mentioned 1 product, which is Zac D, the combination of zinc, vitamin A, vitamin C and vitamin D. That product is going through the roof as we seek. There is another interesting product in our portfolio by the name of Gluxit, which I mentioned. So this whole thing I touched upon, which is the whole COVID-related treatment, people are being prescribed steroid left, right and center. And as part of one of the studies we did, the India diabetes study, what we figured out is that the average onset age for diabetes in India, 42.5 years. And there is enough evidence to show now that the use of steroids because of COVID can prepone the onset of diabetes as much as 5 years, right? So we are on the world of a massive surge in diabetes cases, and we are strategically placed to deal with that because of Gluxit and Zomelis. So there are -- and I can go on, right, but in interest of time, there are interesting products in our portfolio, which will help us, not only tie it this time, but also take the growth engine forward. In fact, April performance has been extremely good, even though the entire country was in some kind of regional lockdowns and our people have not been able to meet physicians. We have -- this time, we have delegated the responsibility to the field. So all our sales managers are empowered to take a call at the local level in terms of whether people should work from home or they should work for part-time and so on. So even in such difficult times, given the kind of growth that we've seen in April over March, we find it quite encouraging. I think gross margin in Q4 was a one-off, as I mentioned. So even in FY '22, we will have new products being launched. But unless in quarter 1 of this year, again, we don't have any third-party component, which is significant apart from the new products. So I think just to sum it up on top line as well as bottom line, we are quite confident to stick with our 15% guidance that we've given up.

Okay. So just a follow-up on that. So if I were to just look at your Q4 margins and which were impacted because of the third-party production component being higher, closer to 40%. So do you -- in the assumption of 15% top line and bottom line growth that we are doing for FY '22, are we -- is there a larger contribution from the newer products, which was there last year, which was received the expansion in margins that you were talking -- explaining to Prakash earlier, that would actually yield the growth in revenue and profitability being the same? Because the third-party components could still be higher. It's a part of the time this year.

Yes. So at an average level, so just one second. I think our stand-alone gross margins for the full year was at around 82%, down from 84% last year. So we are confident of maintaining it definitely at 82%, and if possible, make an improvement over that. So when I when I say 15% topline and 15% bottom line growth, we have assumed that gross margin will be at least in line with FY '21 levels, which is a reasonable assumption to make. So within that, I guess, what is the interplay of third party, new product, it's a little difficult to break that up right now.

[Operator Instructions] The next question is from the line of [ Minu Bindra ] from AB Advisors.

Sir, if you could just talk about your future CapEx plans?

There is nothing that is worth sharing at this point. As we have shared, Guwahati, the utilization is still at pretty reasonable levels. And at least for the next 3 to 4 years, we have sorted. So if there is any update that comes up, then we'll share it with you. But at this point, there is no CapEx [ update ].

All right, sir. And maybe if you can provide some more color on the cardiac segment and the outlook on the same?

Sure. So I'll start off, and I'll invite Amit to add to it. So if you look at the cardiac segment, right, there are 2 or 3 big segments there, subsegments. I think one is antihypertensives. We are reasonably placed there, even though we don't have some of the molecules. But I think in terms of the sartans and some of the other brands that we are -- we have, we are fairly well placed. So the second segment, important subsegment of statins, which is again where we have a very good place, so our brands that were in those [ spaces ]. The one subsegment, which has really gone through the roof in COVID times is the antithrombotic segment because I think D-dimer test and has administering of antithrombotic agents has become the order of the day. And if my memory serves me right, I think that subsegment has recorded a growth of more than 25% this year and in COVID. And we really didn't have an offering in the antithrombotic space. And that is a gap that we've closed very recently with the launch of Rivalto, which is rivaroxaban. So hopefully, we will make up for some lost term there. In addition, the other action that we are taking, as I mentioned to you, is the whole cardiology space. We have set ourselves a target to improve our coverage by more than 50% in the next 2 years, and the work on that has already started. So these are some of the initiatives that we have taken up in cardiology.

Okay. And if you can talk about the VMN, what would be like your outlook on the same?

So this is a very, very -- shaping up to be a very interesting segment because I think the whole genesis of our VMN segment has been wherever there has been a healthy co-prescription profile with either our cardiac drugs or a diabetes medication. That has been a driving force for our VMN segment. So it's a very interesting time, which has been brought in by COVID. There, suddenly everybody is talking about health, good eating healthy habits, wellness, immunity. And we don't believe that these are all just buzzwords or seasonal phrases, we believe that these words are here to stay. There will be a definite upliftment in the level of awareness about immunity and general wellness. So this is strategically a very important segment for us, and there will be continued investments in this space going forward. I think that Zac D was our first crush with something where we launched it as a pure immunity booster and not necessarily with any tie-in to cardiology or hepatology, and that has worked out very well for us. We are excited about this space, and you will continue to see some action from us.

Also, I'm just trying to understand how has COVID impacted your sales. Which of your products have had a positive impact on your sales?

Yes. So I think it's really a question of the portfolio, right? So I think if you look at FY '21 and quarter 1 of FY '21, in particular, you will see how the market has behaved. IPM growth was 1.3% without the COVID molecules. The chronic cardiometabolic, [ VO ], VMN, they continue with their 8% to 9% growth. It was an acute therapy. It's the primary care therapy starts to focus to be upgraded and FY '22 is a very low base. So our portfolio being 91% in chronic and subchronic was fairly resilient during this period. But then if you look at the April data, you will see that reversing is playing out. So chronic will still grow at 8%, 9%, 10%, maybe 12% this year. The acute therapies, their base has been completely described. So if you look at the March data, you are seeing 51% growth for the IPM, which is completely driven by it, too. So which means that we are not going to see that short-term inflection of growth either. So chronic portfolio is more of a -- I think, pharma, it's known as a defensible place. Within pharma, chronic is an even more defensible place. So you won't see our numbers swinging widely because of the seasonal impacts. I hope that answers your question.

It has.

The next question is from the line of Utsav Mehta from Edelweiss.

What is the net cash position that we have on our books at the end of the year?

INR 415 crores. So we have a treasury of INR 415 crores, INR 417 crores to be precise as at 31 March at a consolidated level.

Okay. So my question is that, that's a pretty significant. It's almost like a year worth of EBITDA now. Since we have no major plan for CapEx, any sense on what we intend to do with so much cash?

So there is a clarification that we've provided on the dividend policy, and it will be formalized soon that we have an approval to -- from the Board also to maintain a dividend payout ratio of 20%. So that is one clarification. Apart from that, I think even though there is no budgeted use on the table, but in the overall scheme of things having INR 300 crores, INR 350 crores of cash, we don't think of it as having a huge cash balance because we are acquisitive. Zomelis has worked extremely well for us. Strides deal has also gone very well for us. I think Renerve , which is the flagship brand, it has grown at a 17% CAGR since acquisition after absorbing a 7% hit on account of GST. So I think Renerve is close to INR 135 crores, INR 140 crores per annum now. So given the background of all the successes, our confidence is extremely high in terms of being able to take on further deals and derive value from them. So if you look at one good size acquisition, and suddenly, that INR 300 crores, INR 350 crores of cash starts looking like a modest number. So I think given how we have grown, given how we are looking to create value, I think this is something that we are comfortable carrying with for the near term.

Understood. Second question on APIs availability and prices. Broadly, I understand that we are not in the acute segment. But any sense on whether API availability or pricing is a challenge right now?

It has not been a challenge, and I must say that our procurement team has done a really commendable job of last year. I think this wave 2 of COVID is far less challenging than wave 1 in many respects because now we have learned how to deal with it. But even during the wave one, so there are enough approved suppliers that we have. And we don't -- as a matter of policy, we don't place all our orders with 1 supplier. We want to have a mix of 3 to 4 suppliers in order to ensure supplier security. So we have not had a challenge in procurement as far as our APIs are concerned, and we don't see any margin challenges going forward either.

Both in terms of availability or in terms of margins?

Yes.

Okay. Understood. And my last question was on Zomelis...

Sorry the margin question, the exception will be the new APIs, the new product APIs, obviously.

No, fair enough. I mean, scale, I can understand, I just meant in terms of ongoing business.

That's fine.

Okay. Great. My last question was on Zomelis. So we're doing INR 4.4 crores of revenue run rate on this particular product now. Where do you see this number stabilizing?

So it's a little difficult to say where it will end up, stabilize or end up at the end of the year because this product is still in a growth phase. And what -- so we call Zomelis as a strategic product, right, just as because it looks like a strategic product, and the definition of a strategic product to us is something that can get to INR 100 crores revenue in a 3- to 4-year time frame. So that is the target that we are running for. So in that cost, we are definitely confident that Zomelis will get into the INR 50 crore club this year. That's the foregone conclusion. But what will it end this year at and what will be my exit run rate this year, that's still early days. But the trend is very good in sort of the secondary. So I think we are moving at the right direction.

So maybe it's not fair to sort of look at the acquisition cost in context of this particular revenue run rate from what you're seeing?

Fair or unfair, I cannot comment that for you to conclude. But I think on a simple payback basis, we are tracking at something like a 3, 3.5 year simple payback on our acquisition costs. So from our benchmarks, we consider that as a very good deal for us.

The next question is from the line of Seema Singh from [ KN ] Advisors.

I wanted to understand, if you can talk about your margins across segments like cardiac, VMN, CNS, please?

No, we don't talk about that. We don't look at segment-wise margins, nor do we discuss about that. So we have always spoken about gross margins at an overall level. We'll continue with that.

Okay. And secondly, if you could guide us on, like, your 5-year growth strategy or 5-year outlook more broadly, vison, I would say?

So it is -- the 3 or 4 growth levers will be consistent, right? As I'd mentioned, we are very excited about the existing portfolio. So I'm counting Zomelis and Gluxit as part of my existing portfolio now. The whole trend of organic growth in the current portfolio. That is not just about the traditional better detection and is not just about that. There is a whole discontinuity and disruption that has been brought about in the market by COVID. Because of which we see a veritable tsunami of the diabetes coming up in post COVID patients. And our existing portfolio is very well clear to cater to that. It's not just the portfolio but our dominant market position in diabetes also makes sure that we are placed at the forefront of this statutes. So I see a very strong case for organic growth in our current portfolio. Secondly -- the second enabler for growth is that in the diabetes and diabetic site to a great extent. And in cardiovascular, to some extent, we have a very exciting pipeline of patent expirations coming up in the next 3 or 4 years. And needless to say, these are all very -- going to be very strategic products for us. So we launched 10-odd products last year. This year, again, we have given a guidance of 10-plus products, including combinations, which includes also 3 key products. So this is the kind of momentum that you can expect from us every year over the next 3 or 4 years. So the new products is an important second lever. The third lever will be, as I mentioned to you, we continue to be focused on super specialists and consulting physicians. But even within that space, we see that there is room for expanding our coverage. So we are increasing our coverage of cardiologists and CPs by as much as 50% over the next 2 years without adding too many people. So that's the third and important lever. And last but not the least, so these 3 really underpin our organic growth strategy. If you're looking for a number, I don't have that for you at this point in time. But I think 15% growth for FY '22 is something we are comfortable with. And hopefully, we'll be able to maintain that number.

Right. That's very helpful. Can you also give us some color on overall margins and ROC, return on capital, going forward, sir?

So on ROIC, we have -- we -- I think it's one of the biggest discussions that we have at all point because since inception, we are used to 82%, 85% gross margins I think our ROCE and ROE were in 3 digits before we started getting acquisitive. But I think even through our acquisitions over the last 12 years, we've maintained a minimum ROIC of close to 30%. So this continues to be the benchmark for going forward as well.

The next question is from the line of Kunal Ganesh (sic) [ Dhamesha ] from Emkay Global.

So you alluded that you would be increasing the doctor coverage by around 15% in cardiometabolic division. So would that entail a lot of hiring on salesforce? And if yes, what would that number be?

So as of now, so out of that 50% expansion in coverage, about 25% is planned for this year. And in order to achieve the 25% coverage, we have not planned for any increase in freight forces. We can accommodate that within the mass strength. So if at all we expand field force for us, it is either driven by a new product acquisition. So like last year, we acquired Zomelis, so we created a division. In order to house Zomelis. That is something that you can't plan for. And the second trigger for us to create a new division if we realize that some of our brands are not getting enough focus. So we have to take out 1 or 2 brands and put it in a new division. That will start the trigger. So our trigger for new division is usually a product trigger. regard. It's never a doctor coverage kind of a trigger. So we have not planned any increase in sales force this year because of that enhanced coverage.

[Operator Instructions] The next question is from the line of Mudit Minocha from M3 Investment.

And congrats on great set of numbers. I had one question that do you see the threat of brand substitution pharmacy level with increased adoption in e-pharmacy channels as we auto suggest the cheaper brand on the hit websites like Pharmeasy, 1mg, et cetera? Have you seen that trend already? Or do you foresee that? Because in U.S., there was some -- there was -- this was a rampant case.

Yes. So I think the substitution of brands by trade generics, that it will happen in India, what rate it will happen in India. I think that's an interesting question. But I think the comparison of U.S. is a little kind of apples and oranges because there are 2 prerequisites in the U.S., which are in place, because of which, that substitution happens very comfortably. One is that there is a central player model. So the decision on which product to buy is not made by the patient or even the doctor. Whatever comes to the prescription. The pharmacy, which is CVS of Walgreens, they are free to make a substitution from the available list. And what I'm given to understand is if I choose, if I refuse what the pharmacist is giving me and if I ask for a different brand, and if it is more expensive, then the patient has to pay the top up, right? So it is a centralized payer system. It is a system where the channel is so consolidated that the top 5 retailers account for 80% market share. Whereas India is completely the opposite, right? We are an out-of-pocket payer market. So even though you have health care insurance, it covers only the hospitalization kind of expenses and what we call as domiciliary medical, which is even your back lab testing or your day-to-day medication for cardiometabolic or whatever, they are all out of pocket. So the steeping substitution to trade generics which will never happen in India, the way it has happened in the U.S. So all we are talking of is degrees. What is the market share going to be accounted for by trade generics? So we believe that it will play out like how it has in other emerging markets. So Brazil is a good example, where the out-of-pocket ratio is less than what is seen in India. But it is also a dominantly out-of-pocket market. So trade generics have maiden enrolled of maybe up to 15% of the market, but not more than that. So we also see similar kind of numbers in India. Trade generation is definitely a factor. But at the end of the day, the doctor's subscription is paramount, right? And this is not about -- this is not a cost game. When you have severe infection, when you have hypertension, when you have diabetes, it is not about getting the cheapest fill on the market. I think what patients are concerned about and what doctors are concerned about for their patients is to get them a quality medication. And so the prescriptions are going to be based on the companies and whose reputation, the doctors are able to trust. So the prescriptions will if the prescriptions come out in the form of branded generics, the chances of them getting substituted, yes, it may happen, few and far between. But by and large, we don't see that as a threat to our business.

True. Another question that I had was, what's your take on taking your company on OTC portfolio? Because that clearly is also in line with your long-term kind of business. So what's your view? And how do you want to shape that up?

I think for the foreseeable future, you can continue to think of us as a prescription-based company. So as I mentioned, there is so much action that is coming up in our core prescription business that we will not make aggressive moves elsewhere. I think this is the time where we will stick to our core and execute it very well. So that is the broad outlook that we have in mind.

One last question. Again, helping [ forming a solid investment ] and how to understand the situation of -- in best -- so we being the best-in-class free cash flow business, managing cash becomes equally important, if not more important as operations. And during very expensive private company valuations, do you see more accelerated buybacks or more bolt-on acquisitions in the near future, given your tax position and cash generation abilities?

Bolt-on acquisitions are definitely something we're looking for. We discuss it at least twice a week, but that doesn't mean that we will become undisciplined and go out and make acquisitions for the heck of it. Because as I mentioned, we are -- we have been a privileged lot in that sense because we are used to these superior margins and return ratios. So I think the rate of -- the hurdle rate -- for something to pass-through in the system, the hurdle rates are very, very high. So take an example of Strides, for example, it came with a COGs of 35%, which it felt was very high for us at that point. But we brought it down from 35% to less than 18% now. That's a different story, that is how we derived the synergies. But that was pretty much -- that's a very, very high COGs for us. If we look it from an acquisition candidate. So we will continue to be disciplined in terms of high margin, high-return businesses. And as something that can close the portfolio capital. That would be my #1 preference when I'm looking at acquisitions, not buying turnover for the sake of it.

That's great to hear. Congrats again and all the best for the future.

Thank you.

The next question is a follow-up from the line of Sangam Iyer from Consilium Investment.

Just a small follow-up. I wanted to clarify the guidance of 15% revenue growth. It isn't factoring any new inorganic acquisition of products during the course of the year, right?

Yes, yes. This is pure organic growth. We would not be in a position to speculate on inorganic growth.

As there are no further questions, I now hand the conference over to Mr. V Krishnakumar for closing comments. Over to you, sir.

Thank you all for your participation. I would like to summarize now. So we closed FY '21 with a stand-alone revenue of INR 1,109 crores, which represents a growth of 8.7% and a consolidated revenue of INR 1,212 crores, which represents a growth of nearly 13%. At the net profit level, we grew by 20%; at a consolidated level, to INR 355 crores. Our consolidated earnings per share grew by 21% to INR 26.16 crores. The extended prevalence of the COVID pandemic has heightened awareness around health and wellness, hence, we can expect an uptick in health care spending from here on, both as a result of better awareness as well as due to the early onset through protection of lifestyle diseases in COVID patients. We at Eris are well positioned to ride the next wave of growth in health care on account of our strategic presence in the lifestyle as well as wellness segments. FY '21 has been a game changer for us in terms of getting us onto the next leg of growth, and we expect to maintain this momentum going forward. We look forward to executing along our 5-pronged growth strategy, of organic consolidation, new product launches, broader doctor reach, improved sales productivity and pursuit of inorganic opportunities. The execution of this strategy will be complemented by global standards of operational excellence. We expect these factors to result in a strong growth trajectory with high returns and continued robust cash flows. Thank you all, and have a good day. Stay safe.

Ladies and gentlemen, on behalf of Eris Lifesciences, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.