Gland Pharma Limited (GLAND) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '22 Earnings Conference Call of Gland Pharma Limited. [Operator Instructions]. Please note, that this conference is being recorded. I now hand the conference over to Mr. Sumanta Bajpayee from Gland Pharma Limited. Thank you. Over to you, sir.

Thank you. Good evening, everyone, and a warm welcome to Gland Pharma's Earnings Conference Call for First Quarter Financial Year 2022. I have with me Mr. Srinivas Sadu, Managing Director and Chief Executive Officer; Mr. Ravi Shekhar Mitra, Chief Financial Officer, to discuss business performance and to answer queries during the call. We will begin the call with opening remarks from the 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 must be viewed in conjunction with risks and uncertainties involved in our business. The safe harbor language contained in our case release also pertains to our conference call. This call is being recorded, and the playback shall be made available on our website shortly after the call. The transcript of this call will be subjected to the stock exchanges and made available on our website. I will now hand over the call to Mr. Sadu for his opening remark. Thank you all. Over to you, Mr. Sadu.

Thank you, Sumanta. Good evening, everyone. Welcome to the earnings call for first quarter fiscal '22. I want to start the call by wishing you and your family good health. The country has come out of the second wave of COVID-19 stronger than before and have seen among the largest vaccination drive globally. We see the lockdowns have ended, but we must continue to not let our guard down. We continue to follow all safety precautions and norms at our place. We continue to support the nation in this fight against the pandemic, be it supply of essential COVID drugs or supporting the community with supply of essential medical equipment like ventilators and PPE kits. The second wave of COVID-19 brought its own set of challenges in terms of manpower availability and supply chain bottlenecks. In spite of reduced manpower as though at 70% of the norm, as many families were affected by second wave, I am proud of our team who stood up to the challenge and helped deliver a strong performance by working long hours in [ respect ] in time. Our project teams have also ensured there is no delay in terms of capacity expansion. We had a strong quarter, Q1 FY '22 with a revenue of INR 11,539 million, delivering a year-on-year revenue growth of 31% for the quarter, Q1 FY '22, which is also 30% growth over the previous quarter, Q4 FY '21. With a PAT of INR 3,507 million, we saw year-on-year PAT growth of 12% for the quarter, Q1 FY '22 and 35% over the previous quarter, Q4 FY '21. We have generated INR 1,813 million of cash flow from operations for the quarter, despite external stress on supply chain on account of COVID-19. Our execution capabilities be it uninterrupted commercial supplies, project commissioning or new product launches is what underpins our strong performance in this quarter. On the vaccine front, our technology transfer fleet is working relentlessly to complete this [ completely ], technology transfer process for transport chain manufacturing. We have taken technical projects for the first [ matter ] and practice for the second are underway. The dedicated teams for vaccine drug products is finished and is now ready for vaccine commercial production at Pashamylaram facility. We have also entered into an agreement with Hetero, have since produced our Sputnik V vaccine and taken the trial [ vaccine ] last week. Our R&D investments continue to remain in a similar range in Q1 FY '21, '22. Total R&D expenditure was INR 438 million, which is nearly 3.8% of our revenue from operations and an increase of 74% over the first quarter last year. As on 30th June 2021, we have 286 ANDA filings in the U.S. and 1,609 product registrations globally. Let me take you through the business highlights across various geographies. Rest of the World markets have seen strong growth momentum during the third quarter, in line with our focus on increased contribution from Rest of the World market share as was observed in FY '21. This portion of the business is growing rapidly and has accounted for 19% of our Q1 FY '20 revenue as against 17% of our Q1 FY '21 revenue. We have seen 51% year-on-year growth in revenues for the quarter. This has been driven by new partnerships and increased penetrating geographically, especially for key markets as Israel, Chile and Saudi Arabia. We have also initiated registration of new products such as Ertapenem in the LatAm region. Our existing portfolio is seeing strong demand from new partnerships entered during the year on account of our availability, our ability to respond to changing market demand during COVID-19. Our key markets, mainly in U.S., Canada, Europe and Australia accounted for 61% of our revenue during Q1 FY '22 as reduced 69% during Q1 FY '21. This shift is the result of our conscious decision to diversify our revenues in the [ Arabian ] markets as well as ramping up of supply to support the domestic market during the second wave of COVID-19. We have seen 16% year-on-year growth in revenues for the quarter. The growth was contributed from a mix of launch, new products and volume growth in existing products, including Micafungin, Enoxaparin, Heparin and Dexmedetomidine among others. We had several key launches during the quarter, and it was also an important milestone for the company to launch, for us, Ertapenem products for the U.S. market. We launched 13 molecules during the last quarter. We filed 2 ANDAs and received 6 ANDA approvals during the quarter. We also filed 5 DMFs in the same period. Our domestic market accounts for 20% of our Q1 FY '22 revenues. We have seen 77% year-on-year growth in revenues for the quarter. To support the domestic market during the COVID -- second wave of COVID-19, we ramped up supply of registered drugs like Remdesivir and Enoxaparin, a requirement for Indian patients. On the quality and regulatory front, all our plans continue to remain approved for U.S. FDA. We have yet not seen physical audits administrated and some of our customers are conducting audits virtually during this period. Our team continues to remain prepared for any audit overall or in person. Due to second wave of COVID-19, the due diligence activity for M&A opportunities was impacted. We are progressing on the current market environment and are committed to bring long-term value for our stakeholders in any acquisition we had undertaken. We believe we are well positioned to grow our business globally. Our Board and our parent company, Fosun Pharma, continue to support us with their valuable insights on the way forward. We support us with well-defined KPIs for the business, which drives us to strive for excellence. We hope to continue delivering strong results for all our stakeholders and with great expectations. As a company, we stand committed to support the nation battle this pandemic. I wish everyone good health. I now hand over the call to our CFO, Mr. Ravi Mitra, who will share some more insight over the financial performance for the quarter. Thank you very much.

Thank you, Mr. Sadu. Good evening, ladies and gentlemen. Thank you very much for attending our first quarter earnings call. Our earnings presentation has been uploaded on the website. Let me begin with sharing the financial performance of first quarter of financial year '21, '22. The revenue from operations for the quarter 1 FY '22 stood at INR 11,539 million, a year-on-year increase of 31%. The growth was primarily driven by increased volume of existing portfolio and documented by incremental revenue from new products. During the first quarter, we have achieved good growth in the markets of Europe, India, RoW and U.S. Other income for the first quarter of financial year '22 was INR 618 million, which includes largely interest and fixed deposit of INR 339 million and foreign exchange gains on operations of INR 277 million. Gross contribution for quarter 1 FY '22 grew by 9% as compared to quarter 1 FY '21 and by 24% as compared to quarter 4 FY '21. Gross contribution margin stood at 54% for the quarter. We have reported an EBITDA of INR 4,981 million in quarter 1 FY '22 and EBITDA margin of 41%. We have managed to improve the EBITDA margin in quarter 1 FY '22 as compared to quarter 4 FY '21 due to higher operating leverage achieved on increased capacity utilization during the period. Our net profit for the first quarter was INR 3,507 million and PAT margin of 29%. Our operational leverage driven by increased volume enabled us to maintain PAT margin. Effective tax rate was at 25.68% for the quarter. The total R&D expense for the first quarter were INR 438 million compared to INR 252 million of the same period previous year financial year which is an increase of 74% and stands at 3.8% of the revenue. Cash flow from operations for the first 3 months of the current fiscal year was INR 1,813 million. We have built higher inventory levels considering planned launches and increased demand of our key products like in Ertapenem in the coming months. Cash conversion cycle stood at 234 days for the quarter, and we have improved our receivable days and payable days compared to previous year. All our planned CapEx plans are progressing well, and we have incurred INR 1,857 million during the quarter. As communicated in our earlier earnings call, have earmarked 50 -- INR 5,700 million of CapEx for FY '22, out of which around INR 3,000 million will be for vaccine and biosimilar business. A separate suite for fill/finish of vaccine track product manufacturing and Pashamylaram is now ready for commercial production. And capacity building work for drug substance is on track at our new vaccine and biosimilar facility. Our ROCE on an ex cash basis stood at 42% for quarter 1 FY '22, which is 7% higher than last full year FY '21. Our fixed assets turnover also increased from 3.1x in quarter 1 FY '21, stood 3.6x during quarter 1 FY '22 as we increase our capacity utilization. As on June 30, 2021, we had a total of INR 30,574 million of cash, which we intend to utilize for CapEx and to fund our organic and inorganic growth strategies. With this, I would request the moderator to open the line for questions. Thank you.

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

Congrats on great set of numbers. Sir, my first question is regarding the ROW market. So as we have seen a step up in performance compared to what we saw in the previous quarter, just wondering how should we think about it going forward. Is it sustainable? Is there an element of COVID-related demand here? So if you can help us guide for the rest of the year in this geography.

So the focus has been to increase this business in ROW and the capacity we have added, we are putting more efforts to increase this business. We see the markets where we have entered in recent times. The COVID only helped us to get our registrations quicker than anticipated. But the product portfolio that we're selling now, not everything is COVID-related. Some probably COVID-related, but most of it is in a normal business, where we have also won tenders for 2 to 3 years, and we have now a market entry to these new markets.

As far as this is sustainable you think this number that we have for this quarter?

Yes. I mean, the efforts are there. At least, the idea is to balance the ratio between the regulated markets and the ROW. And we're doing everything to keep that growth momentum going and have these numbers aligned with our long-term strategy.

Okay. And sir, can you update us on the China filings and any status update there?

Yes. So like I think even in the earlier call, we said we did file 6 products and 2 are closer to approval. So hopefully, by end of this year, we should launch at least 1 product, and few more products are in the, also, making. So that will be filed in the next few months. So 1 or 2 products should start seeing revenues by first quarter of next year.

Okay, sir. And sir, my last question before I join back, is an update on the vaccine and the biosimilar program. So you mentioned about partnership with Hetero, if you can elaborate on how large is that partnership, and also on your time lines for commercial production of Sputnik on the drug substance side as well.

On the drug section side, we're still on track. We did mention in an earlier call as well. October-November, the time frame we're looking at initiating the commercial production. And with Hetero, they will be making the drug substance, and they have added our side as a finished product manufacturing side. So we can't get out the numbers. But for now, they're going to get the fill/finish done at our side.

The next question is from the line of Sudarshan Padmanabhan from Sundaram Mutual Fund.

Congrats on great set of numbers. Sir, my question is on the gross margins. I think, while you have done a phenomenal job on the top line, primarily growing on the India and ROW market, our gross margin seems to be consistently under stress. So I mean, as we grow the ROW market, I mean, what should be the thought process on the gross margins and on the EBITDA level? If you can give some color on that. .

Yes, this question, I think we've been talking about gross margin even earlier. We are not a B2B company. So you can relate to the gross margins of those companies, that's 1. Second, the product profile and geographies where we sell, the gross margin will vary. Now -- and also by -- in terms of intense volumes in ROW, we are getting the operational leverage. So what we lose at the gross margin level, 2% to 3%, we are able to make up at the EBITDA level. And that's why we're still able to maintain that 40%, 41% EBITDA. And there are also deals in that business. That's one. Second, you can see the last quarter with 54% gross margin, we saw a lot of groups in Indian market. And the gross margin in India is probably around 40% level. And that kind of production from that. As you compare to last year, we need to consider the [ masking ] is not there anymore, the 2%. And also, if you look at our R&D spend, because we also expensed that out as part of this material. So almost INR 7 crore, INR 8 crores of the business are also expensed on this. So that's one of the reason why the EBITDA margin is around 54% compared to a normal [ 56%, 57% ]

Sure. Sure. And I mean, with respect to the India market, I mean, we have seen a good 77% growth on the India side. I mean I would understand that it has some component of Remdesivir and Enoxaparin et cetera. I mean, from a longer-term basis, I mean, should we -- what is the kind of number that we should look at specifically on India? Because we have clearly seen about INR 100 crores kind of a jump on a Q-on-Q basis.

Yes. So clearly, in India, our normal run rate is around INR 60 crores, what we said directly. That's where we have seen our INR 95 crores this time. So the delta of about INR 30 crores is the one which we got in addition to -- because of the COVID. But we also -- we understand this, there are also some pluses and minuses during COVID. We also lose some products because some of the products won't sell. The anti-infectives won't sell. Those products will degrow. So on -- when you consider those losses on positive, the impact will be lesser. But for sure, it won't be like INR 35 crores domestic, but probably closer INR 20 crores, INR 25 crores at the top level. Now at the bottom level, it will be lesser because the margins are lower. These are all the price control products, especially Enoxaparin and [ Remdesivir ] and there maybe INR 7 crores, INR 8 crores of a difference that we have got because of COVID.

And just to take from the previous participant on the vaccine. I mean, your earlier comment was that the second, I would -- I believe that everybody talks about the [ daily 26 ] not scaling up is relatively much easier as compared to the [ daily side ]. I mean, with respect to -- I mean, just to understand the [indiscernible] industry as well as from yourself, we -- what are the kind of issues that we are facing? Or are we facing any issues or have we moved ahead in terms of kind of scaling up the [ 85 ]? I mean just to give some kind of perspective from your side.

Yes. So it is a general issue, I think the area is facing in terms of the need to work with DeltaVax [ 85 ]. Now for Sputnik vaccine, you have to give both doses together. So 80 to 86 with still larger, higher yield compared to inside to match that, we will take more batches that are more reactive. So that's one. But they have changed processes over a period of time, and I think they're improving and they've improved now. So hopefully, the achieved results, which then the pharmacy will get. But while -- when we believe the math, even the early [ '26 ]. The [indiscernible] objective actually, those are in view now. So what we estimate probably should compensate for the yield losses of the year, or something like that.

And this is a take-or-pay contract, right? So to the large extent, I mean, if we manufacture, RDIF would buy it. Is that right?

Yes. So provided by October, we have to start our production. So they are, the RDIF is buying. So yes, but it's -- they have to pick up this take-or-pay again from October to end of next year.

The next question is from the line of [ Saiyo Samiroha ].

Congratulations on a great set of numbers, sir. A couple of things that I -- that was on my mind. I'll ask the first one here first. The first thing was, with respect to the inventory days, that has seen a growth from last year's. I mean in terms of like inventory days, around 276 days now in quarter 1 FY '22 versus 178, 180 levels that we've seen last year. How should we read this?

So it's more a strategic decision [indiscernible] so it's more of a strategic decision. Like we said, we are going to start supplying for enoxaparin to the U.S. market for the largest GPL contract, what our partner has from last quarter of this year. And the [indiscernible], that's one. Second, the prices are fixed service contracts, so we need to be [indiscernible] and looking at the volatility of [indiscernible] prices, we want to have those margins intact. So we have invented the API required for that and also the [indiscernible] are longer. And as you know, you will have problems if you don't supply product in time, especially with GPLs. So that kind of put a pressure on the inventory base increase, but that will start going when once we start supplying for the next quarter.

Got it, sir. And secondly, my thought was on the U.S. again. In terms of growth that we saw for U.S., if I just leave out here, it is around 11%. Going forward, how do you expect this to pan out?

So we still expect around 18%, 20% to the increase. There are 2 factors to it, right? Last quarter, more focus was on -- with the prime products to the Indian market, especially [indiscernible] that are occupied for this. And being a B2B company, we always interact with our front-end partners, if they have inventory in their supply chain. We postponed the supplies to the next month, and that's what we have done. So you can't take this quarter number as a mark for the U.S. market. But as a whole, we still estimate around 18%, 20% growth in the U.S. market.

The next question is from the line of [ Algo Chagarwal ] from [ DPI Research ].

Sir, firstly, I want to understand a little bit on our business model, which allows us to manufacture a certain molecule with multiple partners. So my understanding is that we have our own ANDA filing, that we can basically go out and license it to multiple partners on a nonexclusive basis. But in case of own, like a partner filing [indiscernible], IP and ANDA is like co-owned [indiscernible], I don't know how it's called, how does it make it half? How does that mix happen? And similarly, with the tech transfer model within the IP and know-how is owned by the partner and we just have the manufacturing rights, how do we do rates? How do we manufacture the same molecule with multiple partners? If you can help me understand, that would be better.

There is a partner ownership filing the previous historical, when we started off this business. Initially, we were developing products, and the ANDA was -- were owned by the partners. But the development was always done in the plant. In the last 3 or 4 years, we've been filing on our own. So it's more, I would say, the growth part of business. But the process has changed. The ownership of ANDA belongs to them or Gland. And the second model is the tech transfer model. The product is developed by the companies in their R&D labs and then it gets transferred to our manufacturing sites, where we do the exhibit batch through the model transfer. And then the order gets filed from our sites. So the product will be manufactured at site, and it will be mentioned as manufactured at the Gland Pharma site. And they can go and market those products. So the product, what we develop, that's the product which we can give it exclusive or nonexclusive, depending on the type of contract. Whichever products are getting checked out at our sites, they have the right to go and sell the product. But yes, that's the one that they use.

Okay. So in case of a transfer model, they are not allowed to manufacture the same model for a different person because the know-how is not from the -- another party then?

Yes. Because then I'm thinking that there is a development data. We can't make it for anybody else.

Okay. Got it. So sir, on the similar line, since we work largely on like a nonexclusive basis or say, on the classified model, I believe our profit share would be quite low, right? So if you can highlight the broad range of profit share that we have, like 10%, 15% or whatever [indiscernible]

So it all depends on the time of the profit, right? So when we launch a product, the profits are higher. The percentage of profit ranges from 40% to 50%. Whenever we license a product, maybe rarely, a 30% product, depending on the type of product. But the profit share will always range from 40% or 50%.

Even with the transfer pricing built in, we still have 40%, 50% kind of profit share?

Yes, yes. Transfer price, see, transfer price is increasing of cost of goods, plus the conversion costs and some margin [indiscernible]. And then you sell the product to -- we transfer the product with a partner and they will go and sell the product in the market. So whatever profit that they make over the transfer price, that is shared.

Right. Right. And [indiscernible] basically, the typical arrangements are 15% profit sharing, but the manufacturer provides a product at cost, right, and then we get to 50% profit share. Gland's ability to maintain are, sir?

Yes. No, it's not at cost because we have to absorb all the manufacturing overheads, and also, we have -- we also take a risk, right, I mean, for a period of time. So there is a margin in the transfer price also -- I'm sorry [indiscernible]

And sir, finally, just one last one. If you can help me understand a little bit on what kind of addressable opportunity is there for Gland in the U.S. market. And the small general injection market is around $11 billion, but I believe, for us, the injection market will be quite -- slightly lower given that we are not present on the complex injectables in a big way, and we don't have -- there's a lot of complex delivery systems. So at the moment, what kind of addressable opportunities are there in this year?

For the U.S. market, if you see total general injection, is almost $40 billion, $40 billion, $45 billion [indiscernible]

The [indiscernible] complex...

[indiscernible] the biologic system, yes. So if you remove that, then it will be around $30 billion, $35 billion. And if you see our ANDA, it's what we have already developed and approved, with around $11 billion. And we have filed them to be approved around $3.5 billion. So if you consider everything, around $14 billion already we have filed or [indiscernible] to be approved. And then we have a pipeline of products for the [indiscernible] until next 5 years, another $13 billion of products for [indiscernible] Out of this, complex is around $5 billion. So around $7 billion is still there in the novel definition, another $5 billion in the complex. And we're out there working on the complex side now.

Okay, sir. So you don't see any challenge for Gland to grow in the U.S. business [indiscernible]

We still have time because it's still -- you see, how we are looking at it, especially in our model, the product, whatever we launch, that's not the end of the day because even those products are growing for us because being in the B2B -- we are in the B2B space, the companies are already selling the same product in the market. They actually moved those products to our site because of the cost advantage we give them. So it's not that whatever is launched by us. For example, our product is getting -- is competing with other products in the market, that competes with my company and asks us to manufacture because we give a better price structure to them.

The next question is from the line of Nithya Balasubramanian from Bernstein.

So just a quick clarification on the profit share comment that you made [indiscernible], your typical deal would look like transfer pricing plus a margin, [indiscernible] 40% to 50% of the net profit of your customers. Is that right?

That's correct.

But my -- I think in one of the earlier calls, you had also mentioned that Gland is making INR 100 in total. Approximately, 75% to 80% actually comes from transfer pricing, and a much smaller portion comes from profit share. Is that understanding still correct with these numbers?

Yes, that's still correct. We have actually products where they become more generic. That stands correct. But whenever we launch a big product, initially, they will also get a good chunk of profit. So -- but in the long run, that's correct.

Okay. Understood. Also a quick question on R&D expenses, it's obviously increased quite a bit compared to Q1 as well as Q4. So I just wanted some color on if there's an indication of increased filing activity, or is it because there's some complex products in it that you can maybe, if you can throw a bit more light, on R&D?

So normally, our first 2 quarters are -- go for more of the exhibit batches because we were to file by end of the year. So we have taken almost 13 ANDA exhibit batches in this quarter. And I think that's what the spend is, we have seen that hump, it's a mix of a few complex products, I would say, a couple of complex, and the rest, general products.

So for the complex products, it's just a bunching up of exhibit batches in this quarter. So it might not be at the same level going forward?

Yes -- no. We still maintain that at the end, of 4% of revenue as our R&D expense for the year.

Got it. One last one on biosimilars. So I think you had mentioned in earlier calls that your intention is to repurpose the vaccine manufacturing facility to contract manufacturing of biosimilars. Is there any progress on that front that you can share with us?

Yes. So we are having a strategic discussion with the [indiscernible] of Fosun on the plan. So we have had continued discussions on that, and hopefully, [indiscernible] something should work out then.

So [indiscernible] if you look at their presentation, they have talked about a second plant, which they're, right now, going to commission. They have a third plant, which is already planned and announced. So how does Gland's capacities and capabilities get into the mix?

Yes. So while they are into their own development, you see the pipeline, what they have current and the newer, there's a whole lot of pipelines, which they are looking to expand in this capacity. They don't seem to have enough capacity. That's one. Second, looking at their development capabilities, a lot of companies are approaching them for the CDMO activities, which is currently they're not doing. I think that's where we will play a role. I know that's how the discussions are happening.

Would you also be targeting the ROW opportunity or primarily developed markets of [indiscernible]

No, other [indiscernible] So the primary reason also is getting manufactured in India and supply to the Asian and rest of the markets. That is the easier way because of the regulatory experience we have in managing these countries. So that's one of the advantages that we have.

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

Congrats on a great set of numbers. Just on, again, on the vaccine front. Out of INR 300 crores which you have lined up for vaccine, how much you would have spent already?

Yes, for this quarter, we spent about INR 121 crores. The balance is going to be spent in the next few months.

Okay. And broadly, what kind of basis you are experiencing through vaccines and then further delving into biosimilars? Broadly, what kind of asset terms can be expected from these investments?

The return you asked?

Asset term, asset term.

Okay. Asset -- so asset term, we are going to maintain a similar kind of asset turnover in the company basis.

So around 2.5, 2.6x?

No, no. [indiscernible] 3.6. So we're trying to maintain that.

Sorry. Your voice was not clear. If you could just repeat.

Yes, Tushar, so in the current quarter, we maintained a 3.5, 3.6x of fixed asset turnover. And on the company level, we are going to maintain a similar kind of asset term.

The next question is from the line of [ Barat Seri ] from [ Equida Securities ].

And sir, congrats on a great set of numbers. So I just wanted to clarify on the profit share part. So I just wanted to understand what portion of our current revenues will be coming as a profit share. And what will be the base for the cost of margin business? So if you could give that bit, it will be helpful.

Yes, about 8% of revenue is coming from profit share.

Okay. It is 8%. Am I correct?

Yes.

Okay. Okay. And so -- and I just wanted to understand, on the ROW business. So what has happened over the last couple of quarters that we have been [indiscernible]. Obviously, we would have gone into the new geographies. But how the overall approval strategy has been, if you could throw some light on that.

Yes. So last year, if you see our new plant, we have added a lot of capacity in the last 2 years, so that gave us leverage to exploit that business, so always been where to get our maximum revenues and profit. With our capacity limitations, we are putting a lot of effort on the U.S. That's what we're focusing on. But what we have seen is, of course, [indiscernible] one is we have to derisk our business, and there's also a lot of opportunity out in other markets for specific products. The portfolio, what we have created in the last few years, because we can't get every product to [indiscernible] because there will be margins, so we have selected the portfolio and have tried to drive those portfolio into these markets. And we had those products get registered. During COVID, these products were already at the signing stage, and because of the emergency requirement of some of the products, so we got our plans approved quicker than anticipated. The problem that I would say, this COVID has accelerated [indiscernible] on the way we are growing. So especially markets like Saudi Arabia, Israel, these are markets which we are anticipating a year or 1.5 years later. That's what [indiscernible]

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

I have 2 questions from my side. Sir, I just wanted to understand what attributes are driving your growth in India and the ROW markets. I mean is it lack of supplies? Or is it your cost? What is it, if you were to list on a couple of attributes? And when I look at your overall revenue share, how do you see the share from these 2 markets growing over the medium term, say, in the next 2 to 3 years? That's my first question. And the second question, would an asset on a fixed asset term range of 3.5% to 3.7% and an ROIC of north of 40%, would that be optimum utilization from your standpoint? Or we can see some improvement in your fixed asset terms from [indiscernible] as well?

Okay. So I'll answer the first one, and then Mr. Ravi will answer the second one. From the ROW and Indian business perspective, it's a combination of the portfolio, what we are selecting for this market because some of the products, what we have filed and got approved and started selling in the U.S., we are leveraging that. Second, there's so much product [indiscernible] so we have that advantage in terms of volumes. And of course, the capacity utilization we have with the volumes we started selling in the U.S., we have that advantage as well. So we have a cost advantage as well as a development advantage, what it's making use of from the U.S. From the share perspective, I think probably also U.S., like 50%, 55%, and the rest of the world could be 45%. Yes, of course, it is like we have to look quarter-on-quarter and see how the margins are looking like in the U.S. and how the markets are looking at in the other markets. But China is a special market for us moving forward because the margins decide what we're anticipating and also, the complex side of business in the U.S. and some of the filings that we do and what we have filed and what we're going to file in the future. So we have to manage. There's no -- if you ask me 2 years ago, [indiscernible] towards the U.S., call it, 70%. But the way the market dynamics is working, it's a bit more reasonable now in the ROW business as well for some of the molecules which we are trying to expand ourselves. And also, the regulatory framework and all that, I think -- I know we talked that we do have a strategy, especially on the COVID-stricken countries getting impacted in different ways. And that's one of the reasons we started expanding this way [indiscernible]

Yes. So on your questions on fixed asset term and ROIC. So considering the CapEx growth plan, what we have, we are adding new lines at Pashamylaram, which will help us to meet the volume demand for the next 3, 4 years, after the [indiscernible]. And similarly, we are in a backward integration, we are adding new capacity in our [indiscernible] facility. All put together, after we spend this year's and next year's CapEx, we should be good for the next 3, 4, 5 years' growth plan. So considering all that, we end up definitely 3 to 3.5x of fixed asset term in near term. On the ROIC, if you see an [indiscernible] 40% plus, and any investment which we are doing currently also, we look at internal IRR of at least 20%, which is overall ROIC, which we have. So going forward, any investment we are doing either on CapEx or [indiscernible] we will maintain that similar kind of ROIC.

Sure. So 3.5 to 3-point -- I mean, you would -- like Q1, you did about 3.6. So that's an optimum utilization, if I were to conclude.

Currently, our [indiscernible] are 80% utilized already. And with the new CapEx and new lines, which we already mentioned just now, we'll be able to meet the increasing demand of the next 2 years. So with the CapEx of INR 300 this year and INR 350 next year, we'll be complete on our organic [indiscernible] . That should give us in the kind of asset term returns.

The next question is from the line of [ Alisha Magna ] from [ NDG Capital ].

Firstly, I would just like to understand the supply for the sale finished to Hetero. When is that expected to start from?

So we have just taken the trial batch last week, and it's a regulatory process. So I think the plan is to start in September. But ultimately, it's the timing they have to decide. But I think, hopefully, it should start in September.

So maybe H2 of this year or something?

Yes. Correct.

Okay. And sir, the second thing I would like to understand is that, while you were mentioning even to an earlier participant, that incrementally, the contribution from India and rest of the world is expected to move slightly higher, in light of that, where do we expect our margins to eventually be on a more sustainable basis? Currently, we're at about 40%, 41% EBITDA margins. Will these be sustainable? Or do you expect that to be somewhere marginally lower than 40%? Just maybe 3, 4 years down the line, what would be a sustainable number?

I think on an annual basis, we still estimate around 40% [indiscernible] but on average, our target is to get to that 40% EBITDA margin because we get that operation [indiscernible] up to certain units.

Understood. And sir, the last thing I would like to ask, I actually missed this number, what did you say would be a sustainable run rate for the India business, excluding the COVID impact -- the COVID boost that we got this quarter?

So at a company level, we look at 40%.

40%?

Yes. That's EBITDA margin. EBITDA margin, yes.

No. No, I'm talking about the run rate or the growth. You mentioned that number earlier, but I missed it.

About INR 60 crores, INR 65 crores a quarter.

Okay, sir. And that is a normal run rate we're expecting to see even in light of the new products that we're looking to launch?

Yes.

The next question is from the line of [ Ashi Selka ] from Motilal Oswal Asset Management.

So we have taken [indiscernible] finished for Hetero. So are you also expecting another potential opportunity with some of the [indiscernible]

Some of the?

Some of the other companies, I thought, for other mRNA vaccines.

Yes, if the opportunity comes, we will take it, just that they have to come. So yes...

Okay. Yes. Okay. So broadly, over the next 2 years, you said you see there is a CapEx plan of around INR 800 crores. So where are we in terms of [indiscernible] APIs? And also, if you could throw some light on long-acting injectables.

So we have about -- not on the APIs yet, on the finished product line, we are working around 14 complex products, including steroids, [indiscernible] about 4 products to be filed by the end of next year, a couple this year and the other 3 products next year. So there's another, I don't know, 25, 30 products to be worked on in the next few years. But as of now, it's 14 products which we have started working on.

Okay. And these are all [indiscernible] or these are partnered ones?

We -- see now we are not giving the products to partners to own it. It will be our own, but of course, everything to be sold through partners.

Okay. Okay. And just lastly, to clarify, the commercial production time lines for Sputnik remains around November, October, and we are confident that these time lines will be met, right?

Yes. So the plan is to start around October, November, the vaccine.

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

Can you help us understand like how is the vaccine capacity shaped up at a global level? What are your thoughts? Will there be overcapacity in the coming 6 months to 1 year? And will this be a commoditized space kind of a thing?

I'm sorry. Could you repeat that question?

How the vaccine manufacturing capacity has shaped up in terms of the announcements which have come from the tie-ups with global players have done with each of the local geography, what's your take that? Will there be overcapacity in the coming 6 months to 12 months? And will this become a commoditized space kind of a thing and your kind of thing?

So our pricing is fixed with RDIF. So -- and that's one. Second, these supplies, what we're talking about is not just the Indian market, it's for the global market. And if you see the demand, what we're estimating is about 11 billion vaccines as a demand in the next 9 months to 1 year. So I think we have enough demand. It's a typical supply.

Okay. And your pricing is fixed. And is this for your like pay-or-take kind of agreement? Or that's not the case because it's a government kind of a thing and [indiscernible]

Yes. So we have to successfully get the technology transfer done, and then we have supply from October of this year to end of the next year. And we have a commitment to the government of India.

And going forward, after this commitment, like on a year 2 or maybe year 3, do you think the pricing for these kind of contracts will drop dramatically given the kind of capacity addition which has come globally or going to come globally?

I mean we can't really comment at this stage. It all depends on at that point of time how much actually is available and what's the cost of other vaccines. So I don't think I can comment on that because, like I said, we are not the ones who are selling the product at the end market, we're only manufacturing for them.

The next question is from the line of [ Kunal ] from [ Vallumin Discovery Fund ].

I wanted to understand, firstly, could you please throw some light in terms of the drug substance manufacturing for the COVID Sputnik vaccine? I mean what are the challenges in terms of the supply chain and the manufacturing complexity? And yes, that's my first question.

Yes. So we already told about this, the technology transfer is done for the first. Second is happening now in terms of exhibit batches. The yield is [indiscernible] we have not reached that stage yet. But the technicals from [indiscernible] worked on the processes. They've improved the processes over the last few months and hopefully, the scaleup that needs to improve.

Got it, sir. And I wanted to understand, secondly, on the business model itself. I mean I wanted to understand a certain portion of your revenues in the U.S. market. I mean they come from filings where the customer owns the -- although [indiscernible] go to Gland as investing in the development of the IP, but the customer really owns the IP. And we supply that specific product to that specific customer only. So if I'm not wrong, I think that portion, that piece would be around 30%, 35% of the U.S. business. So I wanted to understand how do you hedge the risk there? Because when it comes to supplying to a single customer, rather than a bunch of customers, so how do you hedge the risk there? Because then, in that specific segment, our exposure is as good as any other company, which is marketing on its own and has its own filing. So it is a -- it has a risk of your pricing and your market share being eroded. So how do you hedge up against that piece of the business?

[indiscernible] I didn't completely understand your question. So the partners who are selling the product, whether we own the IP or they own their IP, is not tied to one customer, right? It's intended for their market, whoever the people is out there [indiscernible] like any other company, we'll be supplying to why only one customer.

Understood. So there is -- I mean, there is a specific portion where you supply only to a specific customer just because you have an agreement with that customer, and the customer owns the ANDA and you don't have any ANDA. So you're working with that specific customer itself and then just end up supplying...

So wherever we have exclusive agreements, we also have closets where there has to be a minimum market share requirement. If they don't achieve those market share requirements, then it will become nonexclusive and we can go and offer it to some other partner.

Got it. Got it. And that is what I was seeking for. And just last question from my end. I want to understand, I mean, is there -- are there any plans of increasing the R&D spend as a percentage of revenue because -- so that's to cater to more complex filings which are lined up for the next 5 years?

No. So based on our pipeline of products and the expenditures, I think we got to go with 3.5%, 4% of revenue as an R&D expenditure because our partners also pitch in with the IT, the legal and also the bio study expenses. So that's not included in our R&D spend. And that's why it all looks a little lower compared to other companies.

The next question is from the line of [ Vishal ] from [ Nerverdun ].

Sir, my question pertains to the China market. So the 6 filings that you have there, could you talk about the market of -- market size of those 6 filings currently?

It's about $550 million.

Pardon me?

$550 million.

Okay. All these 6 filings cumulatively represent $550 million in sales?

That's correct.

Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Sumanta Bajpayee for closing comments.

I once again thank everyone for joining us today for our first quarter earnings call. If there is any questions that still remain unanswered, or if you want any further clarification, please don't hesitate to reach out to me. Goodnight, and please take care.

Thank you.

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