Gland Pharma Limited (GLAND) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to Gland Pharma Limited Q4 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sumanta Bajpayee, Vice President, Corporate Finance and Investor Relations. Thank you. And over to you, Mr. Bajpayee.

Thank you. Good evening, everyone, and a warm welcome to Gland Pharma's earnings conference call for the fourth quarter and financial year 2021. I have with me Mr. Srinivas Sadu, MD and CEO; Mr. Ravi Shekhar Mitra, our CFO, to share the business outlook and to answer queries. We will begin the call with opening remarks from management, followed by Q&A session. Before we proceed with the call, please note, some of the statements made in today's discussion may be forward-looking, and these must be viewed in conjunction with the risks and uncertainties involved in our business. The safe harbor language contained in our press release also pertains to this conversation. The transcript of the call is made available in our website shortly. I will now hand over the call to Mr. Sadu for his opening remarks. Thank you all. Over to you, Mr. Sadu.

Thank you, Sumanta. Good evening, everyone. Last year has been a challenging year with the world grappling with numerous adversities in the wake of the COVID-19 crisis. The health crisis not only impacted human lives, but also had a widespread impact on the economy. We are in the business of saving lives. And true to this philosophy, our employees exhibited extraordinary dedication to help combat challenges caused by COVID-19. They ensured that we maintain a continuous production and supply of critical needs products. Our ability to respond through changing market demands during COVID-19 was visible bearing the registered growth in markets of the U.S., Europe, Canada and Australia and back of new launches and volume growth in existing portfolio, supported by our increased capacity. Our focus on vertical integration strategy in APIs, adding alternate raw material sources, optimizing batch sizes and streamlining supply chain management have ensured sustained growth even in these tough times where raw material availability was otherwise impacted. We continue to invest in R&D as we believe it is core to building a sustainable business. In FY 2021, total R&D expenditure was INR 1,220 million, which is nearly 3.5% of our revenue from operations and an increase of 32% over the last year. As of 31st March 2021, we have 284 ANDA filings in the U.S. and 1,501 products registered globally. We had a good quarter in FY '21 and continue to move forward on a well-defined strategy. We have shown year-on-year growth of 40% in revenue for the quarter, Q4 FY '21; and 32% for FY '21. We saw year-on-year growth impact of 34% for the quarter, Q4 FY '21 and 29% for the financial year '21. We have generated INR 6,049 million of cash, cash flow from operations despite inventory buildup from last year-end level, which was impacted by COVID-19. To be able to deliver such sustained business performance in these challenging times is testimony to our business model and strength of our product portfolio. There were several onetime costs that were incurred in the year on account of COVID-19, yet we managed to rise up to the challenge of absorbing these costs with business growth. Let me take you through the business highlights across various geographies. As highlighted on the last call, our focus on geographic expansion in the emerging markets continues and the new partnerships that we have built over the years are showing sustained demand. Our emerging market business is growing rapidly and has accounted for 16% of our FY '21 revenue. We have seen 196% year-on-year growth in revenues for the quarter and 136% growth in revenues for the financial year period. We entered new markets like Singapore, Israel, Saudi Arabia and CIS countries through new partners during this period. Our ability to turn around orders in a short period of time and also offer a broad portfolio of products has helped us achieve this phenomenal growth in the financial year 2021. Our key markets in the U.S., Canada, Europe and Australia accounted for 68% of the revenue during FY '21. We have seen 25% -- 29% year-on-year growth in revenues for the quarter and 22% growth in revenues for the financial year period. The growth was in account of launch of new products and volume growth in existing products with ramping up of capacities. New launches include products like micafungin and differentiated products like bivalirudin in RTU format as well as olopatadine ophthalmic products in branded markets. We launched the 6 molecules in the last quarter. We filed 21 ANDAs and received 32 ANDA approvals during the 12-month period, including our first Penem approval for the U.S. market, ertapenem. We also filed 5 DMFs during the same period. Our domestic market accounts for 16% of our FY '21 revenue. We have seen 15% year-on-year growth in revenues for the quarter and 19% growth in revenues for the financial year period. The new capacities being made available for the domestic market has helped ramp up volume growth in the core portfolio of products. We ramped up remdesivir supply and ensured sufficient availability of enoxaparin for the domestic market, considering the requirement for Indian patients. We launched 10 product SKUs in the domestic market in FY '21. The reasons for the quarterly changes in gross margins are primarily because of product mix variations and geographic expansion. But when you see the margin profile in an annualized manner, you will not find much difference. Again, I would like to add here that strategically, we're trying to diversify our geographical presence by entering into new markets while maintaining the growth momentum of our key markets, so the U.S., Europe, Canada and Australia. As we enter these new markets, we will benefit from higher volumes, resulting in better operating leverage. On the quality and regulatory front, all our plants continue to remain approved by U.S. FDA Given restrictions and challenges on account of COVID-19, customers are conducting audits virtually during this period. I'm confident on the preparedness of our team on any audit virtually or in person. We successfully completed purchase of R&D and manufacturing facility of Vitane Biologics, a biopharmaceutical company located in Genome Valley in Hyderabad recently. And they're now working of -- towards a seamless operations integration of the assets into plant and thereby build on vaccine drug substance manufacturing capability while continuing investment in creating infrastructure for the development and manufacturing of biosimilars. We have entered into an agreement with RDIF to supply Sputnik with COVID-19 vaccine. Presently, a technology transfer process is underway, and efforts are to commence production of vaccine in the third quarter of fiscal 2022. Learnings from infrastructure support from vaccine business will accelerate our long-term strategy of entering the biosimilar space, well supported by our parent, Fosun Pharma. We are also exploring other M&A opportunities that will help build capabilities to strengthen products and technology infrastructure, such as long-acting injectables, steroidal hormonal products, suspensions and nasal and inhalation products. We're also looking at niche API suppliers with complementary capabilities, especially in fermentation technologies, corticosteroid APIs and hormonal APIs. We have started investing in our new biologics facility to make it ready for vaccine and our future biosimilar plants. We will be spending about INR 2,700 million, including the cost of the facility acquired. In addition to that, our existing CapEx plan for our combination and API facilities of nearly INR 3,000 million in FY '22 and INR 2,000 million in FY '23 is on track. The growth CapEx will help us in building additional manufacturing capabilities for complex injectables as well as debottleneck our capacities. As an organization, GPL has been transformational. And despite the COVID situation, we have delivered on all key organizational KPIs. Working on the key pillars of focus, as laid down at the beginning of the year, we managed to work on intensive knowledge chain across our manufacturing facilities. We're going to manage building the vaccine and biosimilar space. We are able to streamline our human capital. It is also important to ensure utmost safety and well-being of employees in these trying times. With new capacities coming online and efficient life cycle management of products, we continue to maintain our strength in efficient supply chain. We are pleased to inform you that today, Ms. Naina Lal Kidwai and Dr. Allen Zhang has joined our Board. Ms. Kidwai has an MBA from Harvard Business School and brings in rich experience in the field of banking and finance. She's recipient of many awards, including the Padma Shri by the government of India for her contribution to trade and industry. She's presently the Chairman of Advent Private Equity India Advisory Board; a Non-Executive Director on the Boards of LafargeHolcim, Max Financial Services; and Cipla, a trustee of Asia House in the U.K. in the Advisory Council; a member of the US-India Business Council; and the past President of the Federation Indian Chamber of Commerce and Industry. She chairs the financial services working group of the BRICS Business Council and is a member of the India-ASEAN Business Council as well. Dr. Allen is a scientist with rich experience in pharmaceutical research and development and holds more than 21 patent applications and had mentioned disclosures and more than 40 publications in that set with peer-reviewed journals to his credit. We are confident that he will take a critical role in setting of strategic direction of organization R&D initiatives. I'm sure that under the able guidance of Ms. Kidwai, Dr. Allen and other members of our Board, we are on the path of greatness of sustainable growth. We hope to continue delivering strong results for all our stakeholders in the coming year as well. I wish everyone good health. I now hand over the call to our CFO, Mr. Ravi Mitra, who will share some more insights about the financial performance for the quarter and financial year. Thank you very much. Over to you, sir.

Thank you, Mr. Sadu. Good evening, ladies and gentlemen. Thank you very much for attending our fourth quarter and financial year ending 2021 earnings call. Our earnings presentation has been uploaded on the website. Let me begin with sharing the financial performance of fourth quarter and financial year of 2021. Revenue from operations for the fiscal '21 stood at INR 34,629 million, a year-on-year increase of 32%. For the fourth quarter, we have reported revenue of INR 8,877 million, which is a 40% growth year-on-year basis. The key drivers for this growth were increase in volume of existing portfolio, new product launches and geographic expansion. We have achieved a very good growth across all the markets in the fourth quarter and during the full year. Gross contribution margin for fourth quarter was 56% and for the full year was at 57%. In spite of the discontinuation of development of MEIS scheme, we were able to maintain healthy gross contribution margin. We have reported an EBITDA of INR 3,749 million in Q4 FY '21 compared to INR 2,861 million, which is an increase of 31% compared to same period last financial year. EBITDA margin for Q4 FY '21 stood at 40% as compared to 42% for the same period of previous financial year. EBITDA for the full year ended March 2021 was at INR 14,370 million compared to INR 10,946 million for the previous financial year, a growth of 31%. We have reported EBITDA margin for FY '21 at 40%, which is an improvement of 46 basis points as compared to last financial year. We have managed to improve the EBITDA margin despite decrease in gross contribution margin and increase in some of the expenses due to higher operating leverage achieved on increased capacity utilization during the year. Our net profit for fourth quarter was INR 2,604 million, a growth of 34% compared to quarter 4 FY '20. During the financial year 2021, our PAT was INR 9,970 million, which is an increase of 29% as compared to last year. We have reported PAT margin for FY '21 at 28%, which is in line with last financial year. While there was a onetime gain of deferred tax liability reversal in fiscal '20, the increased volume and the [ well-timed metrics ] leverage enabled us to maintain PAT margins. The total R&D expense for the financial year 2021 were INR 1,220 million compared to INR 922 million of the previous financial year, which is an increase of 32% and in line with our revenue growth. It stand at 3.5% of the revenue, R&D expense for fourth quarter was INR 304 million, which is at 3.4% of revenue. Our effective tax rate remains at about 25% in fourth quarter and for the fiscal year 2021. In the previous financial year, the effective tax rate was lower due to onetime reversal on deferred tax liability of INR 324 million on account of reduction of corporate tax debt in fiscal '20. Cash flow from operation for the 12-month period ended March 31, 2021, was INR 6,049 million. EBITDA to cash flow from operation conversion was -- has come down during this year compared to previous financial year due to higher inventory on restocking of inventory from the lower level in March '20 when inventory level went down due to initial supply disruption. We have since then restocked our critical inventory requirements, considering planned launches and increased demand in the coming months. Cash conversion cycle stood at 229 days for the financial year 2021 as compared to 200 days as of last financial year-end. We have improved our receivable days and payable days compared to previous year. But due to increased inventory level, our overall cash conversion cycle has increased. All our planned CapEx plans are progressing well. Total CapEx incurred during the financial year ended March 31, 2021, was INR 2,288 million used for increasing capacity at the Pashamylaram facility, our new R&D establishment at Pashamylaram; and for routine maintenance CapEx. Our ROCE on ex cash basis as of March 13, 2021, stood at 33%, an improvement of 130 basis points over the previous financial year. Our fixed assets turnover also increased from 2.4x to 2.8x as we increase our capacity utilization. As of March 2021, we had total of INR 30,058 million of cash, which we intend to utilize for CapEx and to fund our organic and inorganic growth strategies. With this, I would now request the moderator to open the lines for questions. Thank you.

[Operator Instructions] First question is from the line of Sudarshan Padmanabhan from Sundaram Mutual Fund.

Sir, my question is on the working capital. As you had earlier said that this would increase in the inventory rate, I mean going forward, what should we look at should this number kind of normalize? Or do you still continue to see issues as far as availability?

Right. So the year-end was -- the inventory for the year-end has gone up for this base -- basis of when we restocked our critical inventory for new launches and increased demand for -- especially for products like enoxaparin and heparin. Going forward, if you look at an average basis, this will stabilize. But this is in line with our business model, and we would continue to ensure that enough product is available for meeting our demand.

And sir, my second question is primarily on -- now that we have got these Penems in place and I think, of course, us getting this vaccine up and running, this plant can also be kind of repurposed to buy our products, which -- I mean our parent has also got a fair amount of capabilities over there. With such things over here, I mean whatever the amount that we have talked about, the INR 270 crores investment incremental, would that be sufficient enough to primarily set up that capacity, whatever is required for us to supply the 252 million dosage to RDIF? And second is whether do we need to incrementally invest further into fermentation process and bios. The biosimilars are repurposing this capacity even beyond COVID to basically take our capabilities to the next level.

Yes. So in terms of vaccine demand of 250 million, this is in line with whatever we are investing today to expand our drug substance infrastructure. And also some part of the investment is going into the finished dosage wherein we have to build the storage facilities because this is managing a degree of product. So this is -- this will take care of the supply side of 250 million vaccine doses. Now moving forward into biosimilars, probably 70%, 80% of this infrastructure will be useful for it. But as you know, every product has specific requirements in terms of bioreactors or -- from a technology perspective. So there will be add-on investments whenever we get into a development of a biosimilar or we do a dev plans or something. So the idea is probably 78% is good enough to get into that space. And this will actually trigger our -- speeding up our process getting into this -- especially on the CDMO side where companies are looking at biosimilar drug substance manufacturing capabilities and especially with Fosun, our parent company, has -- themselves have the biosimilar capability. So that opportunity will open up.

And how soon can we see this, sir?

Which one? The vaccine?

No. No. No. The biosimilar opportunity. Vaccine, I think we have talked about fourth quarter last time.

So initially, the focus is on vaccine first. Until we finish of this project, we don't want to enter the biosimilar space. They initially build the capabilities of the vaccine and at least for the next 1 year and focus on that and deliver the product once they have entered the agreement for.

And just one more final question on the Penems. Now that we have ertapenem players and I understand that we have a sweet spot given that we have dedicated capacities where most of the players don't have, should we be looking at a barrage of Penems now, I mean, including guys, I mean, venturing into ertapenem or various biosimilars and make itself into a separate portfolio?

So in ertapenem also, we have actually an approved NDA. We looked at a second source to be more competitive. So we're expecting an approval soon. So that will also be launched at a later part of this year. So ertapenem at the Penem will be part of our portfolio.

Next question is from the line of Nithya Balasubramanian from Bernstein.

Congratulations on another good quarter. So a quick question on your U.S. portfolio. So we just have that again because of COVID, there are certain products of yours which saw heightened demand, right, so that, actually, we have more enough with that ertapenem. Would you say that your fourth quarter numbers, these are largely normalized numbers and this does not include the forward impact? Or are you still seeing heightened demand for these quarters?

So the COVID demand in the U.S. has kind of normalized by the second quarter of last year. And like I said in my earlier call, also, our portfolio is -- has a larger breadth while we do get benefit of the COVID-related products, but we also lose some on the other products because of the related synergies coming down because if you see our portfolio, that impact has come down a bit last year because of this. So overall, we always manage -- we're always able to manage because of the portfolio of what we have. So we had some benefits of COVID products in the first quarter of last year, but we also lost some of it because of COVID. But on the second quarter onwards, it kind of normalized. Now there's no impact of COVID in the U.S., it's more in India, but that impact has now been in Q4.

Understood. The second -- my second question was on China. So I think there will be 6 products that Fosun has said which are at various stages of an approval, I think. Three are under QC review and the others are yet to start QC review. When do you think these products can actually be in the market? What is the approval in the review cycle you're seeing in China right now?

Although we can't give an exact time line, but the guidance that we're getting is probably 2 years -- 2 products in third and fourth quarter of this year, we'll get our first approval. And then the last quarter of this fiscal, we might get on to 3 products. And that's what the guidance and the regulatory we're getting from China.

So it's -- would it be FY '20 that -- can we look at FY '23 as a year where China is starting to be a meaningful contributor?

Well, total revenue-wise, it may not be very meaningful. But at least we see some numbers coming in, some from FY '22 and more in FY '23.

Understood. One very quick follow-up on the questions of the previous gentleman -- the gentleman had asked. So in terms of the biosimilar opportunity, are you -- is your aspiration to be a contract manufacturer? Or would you be seriously looking at contract development and manufacturing yourself?

We always started with a contract manufacturing, contract development as they get into our own development. I think that's the part we want to take. We would want to dive in quickly into our own development. So this opportunity, what we took now, is kind of a learning profile for us. And last year, we've been talking to people, and they are expressing interest to move biosimilar manufacturing to us. What also we realized is just not the filling people look at, they also look at the substance manufacturing because most of time, product stability has a limited time and transporting across geographies is difficult. And that also kind of expedites our entering into the [ segment ].

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

Yes. Sir, my first question is, we have seen a step-up in performance in ROW in this fiscal year. How should we think about that going forward? And secondly, on the U.S. market also, I mean what is the impact of COVID in terms of lower demand? Is it -- can you quantify that number which can potentially come back in next fiscal? For Europe and U.S. put together, you already established market share?

So U.S. is a larger market. Europe is comparatively smaller. So U.S., I can't put a number. But if you look at the numbers compared to the previous years, like we mentioned in the previous calls, the instances have gone down at least for a couple of quarters because of the kind of admissions happening in the hospitals. And -- but we also sold more of some of the anticoagulants and the neuromuscular-blocking agents. So overall, the numbers, still, we could manage because of the portfolio we have. And if you see products like vancomycin hydrochloride products before, it's not anymore, and that's one of the reasons because of the lesser sales of vaccine products. So that's the one comment I can make. But I can't quantify exactly the impact.

Yes. And sir, how should we think about the rest of the world market where we have seen a step-up in revenues this year?

That's very intentional. If you see, we had been building up the portfolio and registrations. One was the capacity utilization. We are focusing to give more capacities for the U.S. market now that we have built in capacity from the last 3 years. We've been trying to launch our products in these markets. And in a way, COVID also helped us to get to this market quicker than we anticipated, especially in markets like Saudi Arabia and Singapore where the registrations there are not longer. Because of COVID, we could do some emergency supplies and that kind of helped us get to your other products because the site got approved and stuff. So it -- and moving forward, because of the additional capacities we have installed last 2 to 3 years, we are able to cater to these markets, and that will be a focus area as well to increase geographically so that both from operation business that will help our margins and also bring us some dependence on one of the markets.

Okay. So basically, do you think it will be more driven by -- the growth driven by new markets opening up? Or the markets which have already opened up, you would have more products coming in? I mean what would be the more important driver of growth in the ROW market?

It's a combination of both. If you see, in U.S., we have grown around 21%, 20% last year. And the rest of the world is growing faster. And they've always been very strong in South American, LatAm markets. And there are a lot of distributors. And the other advantage we got is now currently the partners who are in the U.S., they are spread across in several countries. They're taking these products also. So you see some of the products going globally, whether it's [indiscernible], whether it's Slovenia, they're taking across some of these markets. So that also will add up to the geographic expansion.

Okay. Sir, the second one is on the vaccine and biosimilar. Sir, firstly, on vaccine, I mean this 250 million dose contract, to start with, will it be fill and finish only? Or it will be -- even the first dose -- first vaccine will include the drug substance production at your end?

It's a substance and a fill/finish. So the agreement is for substance and fill/finish. That's one reason why we're investing into the substance manufacturing here, yes.

Okay. And sir, the other broader question on biosimilar is like you mentioned -- I mean what's the thought process here given that there are large players in Korea, China, et cetera? What -- and Gland Pharma is entering into this space as a new entrant. I mean what would make Gland differentiate in this space? And why do you think Gland would succeed in the scaling of this business over a period of time? What does Gland bring to the like table or Fosun brings to the table to make it a successful business for us?

Yes. I mean if you look at our business model, that will continue, right? We always partner with people, we don't get products or -- we don't get into the development unless we have some partnerships, and that model will continue. I just started a journey in generic complex markets, but -- that will also will add up to that. The companies we've been talking with -- there are several companies we're looking at outsourcing, the filling, outsourcing that substance. And that it's also challenging that for this filling -- for getting that substance from them. And with our capabilities and infrastructure and the experience of handling the -- at economical levels, we had that advantage. So the first step is to get into the filling of kind of a business. And they're the first one to play the role because of their space -- they are in the biosimilar space. One thing is looking at the Asian markets and other U.S. markets where we can produce here and take to those markets the first step. And moving forward, the injection space itself, right, I mean, there's a lot of opportunities in terms of biosimilars and new molecules are coming as the larger ones. So it's an entry now. And I think moving forward, 3, 4 years down the line, that could be a substantial growth prospects for the company.

Okay. Sir, just to clarify, is it likely that Gland Pharma would be doing contract manufacturing for Fosun or its subsidiaries who are in biosimilars? Is that -- what would be the first stepping stone here?

Well, we are looking at different opportunities. That could be one, but it could be several others as well. So big companies are looking at outsourcing this activity first in drug substance then the formulation side.

Next question is from the line of [ Utsav Mata ] from Edelweiss Asset Management.

Could you just, I mean if not in too much detail, then at least qualitatively, sort of take us through some of the economics of these 250 million doses, how much revenue, how much margins and what is the investment that is entailed?

Look, the investment part, we have already said that it's about INR 270 crores investment, getting into this substance formulation. We can't really talk about the economics on the revenue side.

Okay. But -- okay. Anything in sense of the hurdle rate that you would have considered? So are you basically looking to, let's say, make 15%, 20% ROCE on just this particular investment through the vaccine itself? Or are you sort of factoring in the longer term income from these assets?

So we maintain the same level of ROCE threshold target when we do any investment. Considering that, even for this new drug substance infrastructure investment, we will continue to have that same kind of IRR expectation.

Okay. Understood. And just one simple bookkeeping question. This acquisition that we've made, could you just provide some broad controls in terms of the cost? And I think it's a cash investment, so yes, in terms of costs.

Yes. So this happened subsequent to financial year 2021 end. And this is actually an asset purchase. So we have -- subsequent to March, we have purchased their facility and recruitment, et cetera, total amounting to about INR 90 crores. On top of it, we are going to invest a balanced amount to scale up for the vaccine purpose, which includes bioreactors, storage capacity, et cetera.

Okay. And the existing facility has bioreactors, single-use or multiuse?

It has single-use bioreactors. But to a certain extent, to get to that -- the scale of vaccine, we'll invest into an expansion for the commercial production as well as procure the bioreactors.

The next question is from the line of Ritesh Rathod from Nippon India Mutual Fund.

Yes. Ritesh here. Can you help us what the existing capacity will create in vaccine once the plant is up and running? And you have contracted with RDIF, what we can do with other players? Can you [ do away ] with empty capacity which can be contracted with other players on vaccine side?

So currently, the drug substance capacity, what we are building is the 252 million for the year. So that's what the capacity is getting built. And for the finished product side, again, we have allocated 2 manufacturing lines for these, which are dedicated for vaccines. And it may not be complete within the 2 lines, but probably 70% to 75%, it can fill that capacity. If we get an opportunity to fill other vaccines, we'll certainly do.

And what kind of other vaccines you're trying to fill/finish? What -- will it be additional...

No. I just think we fill...

And fill/finish this into an [ MRN ] also?

Yes. It can be done. Yes.

Okay. And this contract with RDIF, is it an annual contract? Like every year, you have that option? Or it's a onetime contract and the second contract will be dependent on how that gets executed or that later on...

The current contract is like for 252 million. And it all depends on how the situation will be after that, right?

And it will be -- we will be agnostic, like they supply to India market or exports, your profitability, your margins will be fixed given your contract is with RDIF, right?

Absolutely. So our product is not dedicated to the market. We have to supply to them, and they'll decide where to supply their products. Our pricing and the supply is for the RDIF.

And that is already fixed, irrespective of which other geography, whatever pricing they get?

Absolutely, absolutely.

The next question is from the line of Tarang from Old Bridge Capital.

Sir, congratulations on a strong set of numbers. Just wanted to check what was the export incentives that were not received this year versus the last year?

Yes. So the export incentive MEIS scheme was there up to August. And from September onwards, we have not received. The total would be about INR 60 crores.

Okay. So just wanted to check, sir, if I adjust for it, your profitability, the gross margin has actually improved on a year-on-year basis despite a significant change in your business mix. So from what I understand, the profitability in the developed market -- in the emerging markets is maybe lower. So despite that, you've been able to improve your gross margins. So if you could comment on that?

So the portfolio, what we're taking to other markets, we are now focusing on products where we have better margins than the normal products. And that's how we started. And if you look at the markets we have grown, like Singapore or Saudi, they are better margin markets. Yes. Again, we -- although we have a large portfolio of products, we're selecting what will keep us in terms of margin percent better than compromising on the margins.

Okay. And how's the competition -- competitive intensity in these markets, sir?

Some products, not many players are there. That's one of the reasons you see, even if you look at the top 10 products in our companies, 5 or 6 products, we make our own APIs. So that kind of gives an advantage in terms of that to integration. And the capacity of what we have in terms of facility utilization, capacity utilization, that also is helping us keeping this margin. So it's a mix of back integration, mix of the output we are giving through maximizing sites. And also the product mix we are launching in this market. It's a combination of these, which is helping us to keep those margins intact.

The next question is from the line of Tushar Manudhane from Motilal Oswal.

Sir, just on the -- first of all, congrats on a great set of numbers. Just on this Sputnik vaccine, has any of the contract manufacturing companies -- I mean there are, I guess, 7 to 8 companies who have tied up with RDIF, has any of the company scaled up to the commercial level production as of now?

I can't really comment because it's still privy to a lot of these companies. But people have -- companies have tied up with RDIF have different time lines, right? Some have entered agreements end of last year. We entered only March. So I would say, of course, not every -- and if you see the companies that have tied up are mostly on the bio side, not real vaccine manufacturing side. And the technology, like everybody is saying, vaccine, actually, is not gone in a year or 2. And we need -- they have to interact with a lot of companies in India and then get the technology this year. So what we hear is people are coming closer to scaling up and getting launched in June, July. But that's a hearsay. So we can't really comment on other companies, but I think we will see soon some manufacturing happening in India.

Okay. Secondly, on the pace of the ANDA filing, it has moderated in 4Q FY '21. Any color you would like to give?

Yes. One is, of course, there is an impact on COVID for at least a month or so because of people attending the [ giris ] and all that. Second, is the kind of product mix we selected. We talked about getting into the complex generics. So there's a mix of those products also, which has a longer time line. If you see, we have started working on almost 17 -- 16, 17 complex injectables. You'll see some filings happening this year, but 2 or 3 will happen this year. So this has a longer development time compared to normal ANDAs. Other than that, there's no particular reason, I would say.

So overall, ANDA filing is like -- are there other India filing targets for FY '22, including these complex products?

It will be around '20, similar. And because every year, we have set up for complex products under the 4 so -- the 4 or 5 products will be complex, which may take a longer time. So that way, earlier, if we kind of target or the '24, the normal generics. And we're putting some complex mix into that. So target is 2022 then falls between that.

And just to complete this, so the overall R&D cost is also expected to increase because we are having more complex products filing?

No. So if you look at percentage-wise, we'll still say it will fall below 3% to 4% because they're growing faster, so the absolute number is substantial. If you see the absolute number, we have increased by 30%. So that will take care of the complex. And our model itself is like tying up with companies. So they do take some of the cost of -- if there is a requirement on bio or chemical. That way, we still continue to maintain that 3% to 4% of revenue as R&D expense.

And just lastly, on the operational cost side, by the kind of CapEx which we are doing. So the rate of increase of the operational cost maybe for the next 2 years in terms of employee costs or other expenses, how do we look at it?

Yes. So going forward, employee cost is going to be in line with requirements from a volume perspective. Other operational costs will not increase in that fashion because there is a leverage risk. You may not need to spend the same amount proportionately as the volume go up because the facility is same and will just scale up within same facility. So we'll get that advantage.

The next question is from the line of [ Vishal Manchanda ] from [ Ramalan Institutional Equities ].

On Sputnik vaccine, I wanted to understand, is the RDIF willing to purchase 252 million doses that they are contracted for?

Yes. Once the technology transfer happens and we can show them the substance is available, then they are going to take the 252 million doses.

Sir, assuming if there is no recurring demand that they have for the vaccine, will you be able to put this facility for an alternative use?

Yes. So like you said, first, the, 252 million, again, is a binding agreement. So they have to take it. And this is not for this one market. They have approvals in over 50 countries. So they have a demand. It's just a question of supply now. From alternate, post this, if there is an extension of requirement because still, nobody knows whether it's annual demand, everybody has to vaccinate every year, it's not clear yet. So if COVID goes away, the facility can be used for a bio space. Like I said, probably at 15% of this is specific to this particular vaccine. The rest can be utilized for other products.

Even other vaccines and other biosimilar products as well?

Other biosimilar. Yes. Correct.

And was there any contribution of remdesivir during that or all of that will come in the next financial year?

So during the quarter, Q4, it is not much. But Q3, yes. And then after the previous quarter and then in this current April to June, where you'll see this.

Okay. Okay. And just one more on the Sputnik vaccine. So you would be incrementally investing INR 270 crores, but that does not include the fill and finish facility because you already have that in place?

Correct. So we are going to add on -- we're going to spend some amount into that INR 270 crores to add capabilities to fill in terms of storage specifically because almost 20, 25 of this stock have to be maintained at the site before we get an approval. Some investments are going at the peripheries, but mostly at the substance level.

And will there be a large expansion in employee costs to support this COVID vaccine production?

No. It's not going to be substantial employee cost.

The next question is from the line of Amey Chalke from Haitong Securities.

Congratulations to management for the good set of numbers. Most of the questions are answered, but just a follow-up question on vaccines. Sir, one of the partner with RDIF has said that they are doing clinical trials for which they are manufacturing those vaccine in India. So do we also have to do clinical trials before we launch this product in India? And the second question I have is on the peptides. If you can highlight where we are in terms of filing these products and also the manufacturing capabilities because I believe we were looking for peptide API companies a few months back. So where are we in terms of manufacturing capabilities in this category?

Yes. So from the vaccine side, from our perspective, I know which company you're referring to, so unless we sell in Indian market, we do not do a clinical study here. They're expecting a bridging study between the sites. But that's not going to come under our view. Our agreement is to fill -- give the finished product to RDIF and they will decide where to sell it. And if they want to sell the product in India, then whoever is marketing or however they want to do, they have to do the bridging study. We are not responsible for that. That's on the vaccine. From the peptide side, yes, we -- like I just mentioned before this call, we are working on some of the complex products, including some peptides and some hormonal products and some suspensions. So one of the peptides complex is that we -- is expected to be filed this year. And next year, there'll be a couple more. On the API acquisition front, yes, we are looking at some of the manufacturing development side. But as of now, nothing concrete yet on this side.

Sure. Sir, just last bookkeeping question on the other income. Because for last 2 quarters, our other income has been similar to what we used to report before the IPO. So just wanted to know like how it will move up since we are upsetting on around INR 3,000 crore cash for next 2 years.

Yes. So other income is largely constituting interest on the fixed deposits, our treasury, and the foreign exchange on our operations. So going forward, this cash will continue to run this kind of other income until we utilize that for any M&A or large investments.

Sir, any strategy on the dividend side that you want to highlight?

So we are a high-growth company. And at this point of time, Board has decided to reinvest into the business. So based on Board's decision in the future, the dividend will be decided.

The next question is from the line of [ Ankush Agarwal ] from [ Rapro ] Capital.

Firstly, on the biosimilar business, what kind of business model are you targeting? Like how are you looking to develop our own IP given that it's a very long time line that is required to develop the IPO and the costs involved are also higher or it would be largely a CMO operation that we will be looking at?

To start with, it's largely a CMO or TDM more kind of business we're looking at on biosimilars.

Okay. Got it. And sir, secondly, any update on the inorganic opportunity that you are targeting, specifically the respective substance in the U.S.?

Not in the U.S., not on that area yet. What I said to them because of COVID, there are some limitations in terms of M&A in some geographies. But we are looking at fillers, even at some of the M&A opportunities in Europe. But I other than that, we can't comment much.

So the Europe team unfortunately are related to like expanding the manufacturing infrastructure? Or it would be expanding like the geography of the product portfolio that we can't do in India?

Yes. It's more into the -- it's a combination of product portfolio and capabilities in terms of manufacturing, which we don't have.

The next question is from the line of [ Jigar Walia ] from [ OHM ] Group.

My question is slightly on the similar lines of the prior one. In terms of biologics, we'll be looking at vaccines, mAb, peptides. Are we also looking at bookings in [ GPMs ] as significant? And to what extent the capacities can be fungible?

Can you repeat that? I lost it in the end.

So my question is, we will -- on the biologics side, we look at vaccines, mAbs, peptide products. Or we also look at proteins or [indiscernible] or products like that?

Yes. To start with the vaccines, mAbs and some peptides, and then we can get into other stuff. But really -- primarily, we are looking at this area.

Finally, and would capacities generally be fungible when it is -- or products -- like that products now, there will be a dedicated separate vaccine required?

Some might need some additional equipment and some reactors. But otherwise, most of it can be fungible.

The next question is from the line of [ Vikas Mri ] from [indiscernible] Ventures.

Congrats on a good set of numbers. Actually, sir, I want to ask questions again on biologics. What is your reason for next 5 years whether you will be doing some stepping some cell lines and all that? And what is the capacity of kiloliters you are thinking in terms of establishing?

We're just -- now we're just entering it. So the first step is, of course, vaccine. We're going up to 1 kl, I would say. And yes, then we'll get into the other areas and then understand the demand and the technology. It all depends on the substance technology as well. Like I said, our idea is to enter into CMO kind of business, CMO, CDMO. And that will dictate what kind of reactors we need getting into that business.

Okay. Okay. One more question on top 20% of -- what is the revenue contribution from your top 20% or 10% of molecules?

Our top 10 molecules contribute about 57% of business, yes, at the company level, yes.

Okay. Sir, do you understand that the kind of growth you're showing? Is your CapEx in line with this kind of growth to sustain for a good amount of time?

Yes. If you see last 3 years, we've been investing into capacity for next, I would say, '24, '25. That's where we've been investing into. And as we speak, given the side where we are building, we want to show the vaccine that still have capacity to add more lines. And in injectables, like I always said, almost 85%, 90% is fixed costs. You need to have a site and the suites ready. And add-on lines might require some CapEx, but it's not huge compared to building a site. So yes, we are building up for a few years.

Sir, last question from my side. What is the volume and value in terms of growth can you take down for me?

Yes. If you look at the 32% growth for the last year, about 14% came from new launches, 9% from volume and 7% from value price.

The next question is from the line of [ Ankush ] from Access Securities.

Yes. Congrats, sir, for a good set of numbers. Sir, I just want to understand, last year, we have launched 46 new products in the 4 markets. And with the launch of these new products and expansion in the emerging markets, the kind of growth is there. Sir, what is the target for the new products for this FY '22? And what is the strategy for this emerging market? And can I get, sir, some more sense in which category that we are going to launch all these new products in this year, like dermatology, oncology, diabetes, something like that?

So we don't go by the therapeutic area. If you look at the FY '22, there are almost 62 SKUs planning to be launched and which is about 36 molecules. And the quarter 1, the plan is to launch about 10 molecules; and quarter 2, about 9. And if you look at our approvals, we already have approvals for many of those. And if you see the last quarter, Q4, we had a -- give me a second, how many approvals? We had 8 approvals in the -- in Q4. And so we have a pipeline of products we need to be launched. And there are also 7 tentative approved products, which we launched in second quarter. So we have a robust pipeline to get launched in this year as well, FY '22.

So we are looking for 62 SKUs?

SKU -- yes, 62 SKUs. But if you go by molecule-wise, in 6 months, it's about 20 molecules we'll be launching.

The next question is from the line of [ Vivek agrawal ] from Value Crest Investments.

Sir, the first question on EBITDA margins. We saw good expansion in this year. What is your urgent controlled build improvement from here on in the medium term?

So we cannot really give a guidance on that matter, but we'll continue to maintain the kind of EBITDA margin we are doing.

Okay. Secondly, on U.S. segment, apart from ertapenem, do we see any other important high-value launches for the company in FY '22, anything that we want to call out on?

Some of the products that we launched last year and we annualized as well, if you look at micafungin, which we launched last year, it's -- the numbers are looking good. We are the only ones there. And most of the contracts are in place. So that will add substantial revenues for us. And from a launch perspective, several ANDAs, I mean not many biosimilar products out there. But products, for -- we have -- we're launching so many molecules. There's a mix of several products that's giving us this growth.

Okay. Sure, sir. Sir, lastly, earlier, you had called out that a good part of supplies for enoxaparin will be shifting from innovator to blind in FY '22. So could you throw a light on how meaningful this opportunity can be for the company in '22?

So we're expecting to do it in the last quarter of this fiscal, that's an agreement. So we'll see a quarter of sale of this year and then moving forward next few years.

The next question is from the line of [ Ravina Ravi ] from the Ravi Investments Pvt., Ltd.

Sir, please say about the CapEx plan, I could not hear properly for next 2 years?

Right. So for the next year, we indicated a CapEx of INR 300 crores.

Yes. Or next year?

Which includes our investment in our Pashamylaram facility; our API facility, ANVISA, and our facility in ANVISA. And the year after that, FY '23, we expect to spend about INR 200 crores.

INR 200 crore in this and the INR 500 crore plan is there. And sir, the -- one thing is there is last in this pandemic time, most of the pharma companies margin has increased this year, but our margin is stable. So any specific reason for that?

It all depends on product portfolio, what we have, right? I mean there are some companies there that struggle because they don't have the particular kind of a product. And some, they do well, if they have a set of products which are good for COVID. For us, like I always said, we have a better portfolio where we're not dependent on 1 or 2 products where good times, it's very good, but then you also have bad time. So we have that balancing act. So we kind of continue to do it. If you look at whether it is -- within a year, seasonal change does not impact us big way and also year-wise-there's no big impact. So I would say that's one of the reasons we kind of maintained a stable business in terms of growth and margins.

Fine, fine. And sir, lastly, we have over 3.39% of R&D. So next few years, this will be the -- our best or something we are doing great in this R&D?

No. We continue -- if you look at our plan, the 5-year plan, it will be between 3% to 4% in terms of R&D expenditure. And the absolute number, of course, we are growing faster. So the absolute number is growing fast -- that fast, right? I mean 30% you're growing or 25%, 27%. So your R&D expenses are also growing that way. So investments are increasing in terms of numbers.

Ladies and gentlemen, that will be the last question for today. I will now hand the conference over to Mr. Sumanta Bajpayee for closing comments.

Thank you again, everyone, for joining us today. If any of the questions still remain unanswered, please feel free to get in touch with me. We will provide our feedback. Thanks. Stay safe. Good night.

Thanks.

Thank you very much. On behalf of Gland Pharma Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.