Granules India Limited (532482) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Granules India Q3 FY '21 Earnings Conference Call, hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Dr. Kunal Dhamesha of Emkay Global. Thank you, and over to you.

Good evening, everyone. I would like to welcome the management and thank them for giving us this opportunity. We have with us today Mr. Krishna Prasad Chigurupati, Chairman and MD; Ms. Priyanka Chigurupati, Executive Director, GPI; and Mr. Sandip Neogi, Chief Financial Officer. I shall now hand over the call to Ms. Richa Singh from the Investor Relations team. Over to you, Richa.

Thank you, Kunal. Before we proceed with this call today, I'll read out the safe harbor related to this conference call. Today's discussion may be forward-looking in nature based on management's current beliefs and expectations. It must be viewed in conjunction with the risks that the business faces and it would lead to future results. With this, I would like to hand over the call to Mr. Krishna Prasad, Chairman and Managing Director. Over to you, sir.

Thank you, Richa. Good evening, ladies and gentlemen. I'm sure all of you agree that we now can see a little light at the end of the tunnel as the COVID vaccine rollout had started. We cannot relax as we are still only at the beginning of the end of the current crisis and have a long way to go. I wish that you and your families continue to stay safe. All of you would have seen the financials and the presentation on our website by now, and I do not think I should go into these details. Priyanka will present them briefly. And I will only dwell on the broad outlook, and then we can spend more time on Q&A. I'm happy to inform all of you that we had a good Q3 and are on track as per our growth plan. During Q3, we had tremendous challenges with respect to supply chain disruptions and RM price increases. I compliment our team for having overcome these by the tremendous dedication and efforts. The aftereffects of the COVID crisis are getting more visible now. And as we go by, we foresee more logistics and supply chain disruptions. We are bracing ourselves to counter these and expect to overcome them as much as possible. There has been a negative impact on profitability on account of the disruption situation and also due to the withdrawal of the MEIS scheme. I would like to list out a few positive events since our last call. We had received the following important approvals: potassium chloride tablets equivalent to Klor-Con M. This is our first MUPS-based product approval for Hyderabad, even though we had launched a few MUPS products from our U.S. facility in the past. Though the new block for our MUPS will be ready only by Q4 of FY '22, we had started manufacturing this product in one of the existing modules. Since the capacity of this module is small, we are building up enough inventory for launch, which we expect to happen in April of FY '22. The addressable generic market for this product is $148 million. We are also expecting approval of another MUPS-based product during the current quarter, which will be launched by late FY '22. Another product approval is dexmethylphenidate, equivalent to Focalin XR. This is also a MUPS-based controlled-substance product for our U.S. facility. This is a C2 category and can only be manufactured in the U.S. At GPI, we already have commercialized a few MUPS-based C2 products, and this is a nice addition to our table of such products. This will be launched in the last week of March. This was launched in the last week of March -- sorry, this was launched in December, last week of December, and will ramp up in the current quarter. The addressable generic market for this is $180 million. Metformin ER equivalent to Glumetza. This is a nice addition to our basket of metformin controlled-release products. We already have the product in the U.S. in anticipation of approval, and we'll launch it in February of '21. The addressable generic market for this is $89 million. Penicillamine capsules equivalent to Cuprimine. We are integrated in the product and make the API ourselves. This will be launched in the current quarter, and the addressable generic market is $37 million. We now have 10 approved products, which will be launched in a phased way. I would like to mention that Granules always focus on excellence at all stages of development and scale-ups and commercial operations. This had led us to leadership position in both cost and market share. As we enter Europe and other geographies with our own dossiers, which will be by the end of current Q4, we expect to get a good market share in these markets, too. I'm happy to state that while the MUPS block construction and the API expansion at Vizag is progressing at a rapid pace and expected to be complete by Q4 of next fiscal, we anticipate the need for extra capacity to fuel our growth by FY '23 or early '24. To meet this anticipated demand, we have just acquired a new site at Genome Valley, Hyderabad, and plan to construct facilities for solid oral dosages and also a few other forms of formulations. We are also finalizing plans to build new blocks for a few dedicated APIs at Unit 5, our Vizag API facility. In the U.S., we have started the -- building a new facility for additional capacity of solid oral tablets and another form of formulation, which will also become operational by Q1 of FY '22, and most of the new approvals will be commercialized from there. Overall, it's an exciting time for all of us at Granules as we continue to resolve various challenges we face, and at the same time, expand our facilities and markets. Ladies and gentlemen, I now pass on the floor to Priyanka and look forward to the Q&A after that. Thank you.

Good evening, ladies and gentlemen. I'm very happy to announce -- to say that despite extremely challenging situations, we are happy to report that our yearly performance will show a significant growth over fiscal 2020. The third quarter revenue stood at INR 845 crores compared to INR 704 crores in Q3 FY '20, an increase in 20% year-on-year. Sequentially, we saw a slight decrease in revenues from INR 858 crores in Q2 FY '21 to INR 845 crores in Q3 FY '21, a decrease of 1.6%, mainly attributed to delayed launches due to COVID, the nonavailability of MEIS scheme in Q3 FY '21, and also due to the inventory buildup for one of our key products in the U.S. that we're transitioning from a partner. We have been building up inventory to launch this product under the GPI label and will be launching this product starting April of FY '22. I would like to point out that we managed to retain all the business that we had on this product. Continuity of supply is of key importance to us. We will have sufficient inventory levels built by March to enable a smooth launch at the end of March or early April. The year-on-year growth is in spite of not having the sales from this product this quarter. We launched about 4 products in the U.S. this past quarter, and intentionally, delayed the launch of 4 other products to ensure we build enough inventory ahead of the launch. We will be launching some of these products in Q4 FY '21. The sales breakup as per business verticals and regions are presented in our investor presentation, which is available on the website. For the quarter, the gross margins moved from 50.7% to 53.7% year-on-year due to increased volumes across all our business segments and also due to the new launches, but fell by 4.2% from 57.9% to 53.7% sequentially, mainly due to higher raw material costs due to COVID, a change in product mix and because of the removal of MEIS scheme. That said, with respect to the RM costs, we have begun to pass on the price increases to customers, and this exercise will be ongoing. We're actively engaging with our key customers on the price increases, and we expect things to stabilize around Q1 of FY '22. EBITDA for this quarter stood at INR 211.6 crores when compared to INR 163.2 crores in Q3 FY '20, a growth of 29.7%. Quarter-on-quarter, our EBITDA declined 480 basis points, mainly due to the reduction of gross margins as attributed above. We had a healthy growth over the previous year, mainly due to an increase in capacity through operational efficiencies. In addition to this, our focus on our product rationalization based on profitability enabled us to achieve this growth. PAT for the quarter stood at INR 146.8 crores compared to INR 64 crores, a growth of 129.3%, while sequentially, it dipped by about INR 17 crores over the Q2 of FY '21. The de-growth of PAT is primarily because of all the reasons mentioned above. We are committed to drive the shareholder's value, and profitability continues to remain our key focus, along with cash conservation. We spent about INR 22 crores this quarter on R&D, which brings it -- which brings the total R&D spend to INR 64 crores this fiscal. We expect to make about 4 to 5 filings this year. Currently, we have a total of 45 filings, 35 approvals and 25 launches. We are yet to launch about 10 products, out of which we launched about 2 to 3 products in this fiscal. We are expecting approvals for 1 or 2 additional products this fiscal. In addition to the ANDAs for the U.S. market, we have filed 2 dossiers in Canada and -- including 1 this quarter and have received approval for 1 product in Europe this quarter as well. We will be launching both the products at the end of this fiscal or in early Q1 FY '22. In addition to developing ANDAs, we're constantly in the lookout to acquire ANDAs and dossiers that fits within -- fit into our strategies. From the 35 approvals we have received, 2 were from ANDAs that we had acquired. On gross debt -- sorry, our gross debt reduced from INR 861 crores in the previous quarter to INR 837 crores in the current quarter. We were able to maintain the net debt at INR 612 crores, while this was INR 613 crores in the previous quarter. Long-term borrowings went up due to euro fluctuations. Short-term borrowings went down by 50 -- INR 42 crores due to efficient management of working capital in spite of buildup in inventory. The operational cash stood at INR 93 crores this quarter. Out of this, we spent INR 71 crores on CapEx, leaving us with a free cash outflow of INR 22 crores. Our cash-to-cash cycle has increased from INR 104 crores in September 2020 to INR 115 crores in December 2020 due to increased inventory levels and a significant reduction in payables. At GPI, we have received approvals for 8 products until December. We have launched about 7 products this year and 3 products this past quarter. We have a good market position on all the products and are looking to grow very responsibly. Despite significant COVID-related troubles, we continued to maintain service levels of over 99% with all our customers and that reiterates our stance on continuity of supply. We stocked up heavily on finished dosages and raw materials, both at GPI and GIL, and this will enable us to maintain our service levels going forward. At the facility in Chantilly, Virginia, which is a GPI facility, we had 0 days off due to COVID and had -- have had minimum number of cases. We continue to run at full capacity with minor adjustments made to working hours to ensure social distancing. Our commercial block will be ready at the end of this fiscal, and this will enable us to increase our capacity significantly. With only a few months to go this fiscal, we're gearing up for FY '22. We're very excited for all the momentum we're preparing for and ensure to continue to do our best for all our stakeholders. With this, I would like to open the floor for questions.

[Operator Instructions] The first question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.

A couple of questions at my end. In your opening comments, you referred to the another MUPS-based product approval and to be launched in FY '22. Could you help me with the number of players and the market size? Is it the same $180 million addressable market size product which you are referring to?

Tushar, can you repeat your question? I think it's a little garbled. Can you go a little slow?

Yes. You were referring to one more MUPS-based product approval and launch in FY '22.

Yes.

Now this is -- so I just would like to know the market size for this product and the number of players or other competition for this market?

The next approval?

The market size for this is about $60 million generic, Tushar.

For generic, definitely, when -- if you add normally the brand, it adds up to a bigger number. So it is only what the generic market is today.

And so how many players are already there in the market?

Probably, there are about 4 players, Tushar.

Got it. Secondly, just on the raw material price hike, you've been engaging with your customers. So how much can this increase in the raw material costs be passed on to customers? And so effectively, what should be the gross margin to consider going forward, considering that MEIS benefit is also not coming back any time soon?

Tushar, our past experience over the last few years shows that we were able to pass on almost a major part of our cost increases to the customers. However, this has always happened with a lag of a quarter in the past. So we expect the same thing to happen now, maybe 3 to 4 months, we should be able to pass on the increases. And as of today, with the increase of material costs and those, we expect the gross margins to come down a bit. We cannot name any number because gross margin, again, is a mixture of so many factors, like product mix and also inventories and other things. But yes, there will be a little impact. But going forward into next year, we think that we foresee that things will be better off.

Got it, sir. So on a steady-state basis, maybe for FY '22, would you like to call out for the gross margin number?

See, gross margin, let's not talk about it. I always say in every call, I will say, in gross margin, let's not talk, let's talk about EBITDA. And the last time also, I was mentioning that EBITDA will be around 27% as we go forward. The last quarter was 30%, which is a good number, but we expect 27% as a normal number. But right now, going by the current situation, I would say it will stay -- it will be anywhere between 25% and 27%. And gross margins, again, to answer your question, will be above of -- maybe around a little above 50%. 50%, 52%, 53% somewhere there as we go back.

The next question is from the line of Ranvir Singh from Sunidhi Securities.

Sir, on CapEx side, just wanted a clarity, the land you have purchased, how much you have invested in land? And INR 400 crores CapEx is after this investment or including all this land plus construction, everything?

So we have -- we -- the cost of the land is about INR 28 crores. And all together, in the next 3 years, almost till '25, the investment there, we expect will be about INR 400 crores. And like I said, this will be for different blocks of solid orals and also other dosage forms.

So this is in addition to the CapEx you have guided earlier. So maybe this is for 3 years, but part of it would come in FY '22 and FY '23. So what would be the total CapEx now for FY '22 and '23?

Our CapEx guidance for '21, '22 put together was INR 350 crores to INR 400 crores. Out of which, I think, about INR 240 crores -- INR 220 crores will be spent in this year, and another INR 180 crores will go into next year. And maybe part of this INR 400 crores, about INR 30 crores or INR 40 crores will come into next year itself. So anywhere from INR 200 crores to INR 250 crores will be for next year. And the rest will be filling over into '23 and '24 -- '24 and '25.

Okay. Okay. And secondly, what is, sir, that launch of potassium chloride has already happened or it is going to happen?

We are building up inventory since we have low capacity today. Until we have the new MUPS block operational, we will have to struggle with a little capacity problem. So we will be launching this in April. We are building up inventory here and in the U.S., and typically, any product, at least 4 months inventory is safe to launch a product.

Okay. Fine. And just, sir, broadly, last quarter that we engaged for a deal and somehow that couldn't fit it. So are we still scouting for any such deal if this is attractive to you or we have left it all together?

I just feel like laughing at you. Yes, I've been denying this on media many times. And even today, I had to -- I stopped saying no comments. Now I started vehemently denying this. There is no deal now or in the near, long future also.

The next question is from the line of Ashwini Agarwal from Ashmore Investment.

Pretty good numbers in a difficult scenario. A couple of questions. You spoke about container availability and shipping bottlenecks. Do you think there's a loss of revenue embedded in the Q3 revenue of INR 844 crores? Or did you manage to get everything out through airlifts or through other arrangements?

No, there was some loss, Ashwini, though we made up something like you said by air freights. Yes, there was a certain loss. But more than the loss of sales, there was also disruptions in raw material, which led to stoppage of productions, again, which would have resulted in loss of sales also. Yes, if the disruptions were not there, definitely, we could have done better. Not only in terms of top line, in margin percentage also because of the air freights and the extra freight costs have eaten into our profitability there.

Right. Right. And how do you see these factors operating now, both on availability of containers freight as well as raw material availability? Have you managed to kind of get into a rhythm that will keep you at normal operations through this quarter, the current quarter?

We are able to manage outgoing consignments better nowadays. Yes, we did get a good grip on that. Of course, we cannot control the freight costs. But definitely, schedules are in a better shape. However, incoming materials are having a big issue. Some of the acids, like acetic acid and other things, worldwide, there's a little disruption, not only in China and also in the western world. And we've seen some disruptions there and credit costs also going up. From China, especially, no containers are available. Normally, it used to take about 18 days for sailing from China to Shanghai to here, to Chennai. Now it's taking up to 45 days. And it's also leading to stocking up more inventory, but today, we don't have a choice of stocking because the material itself is not coming in. And yes, we see some disruptions going forward, but we can definitely manage this. And definitely, I don't think our -- we should be able to maintain these levels of revenues and profitability. However, GPI -- our GPI is very secure. GPI is not suffering from any issues with logistics and supply chain.

Okay. And the increase in shipping rates from India, that would have caused some compression of margins? Or is that something that you are able to recover from customers?

We try to recover as much as possible, Ashwini. But definitely, there's a compression of margins, which we have seen in this quarter already. And the same thing, I think, will continue into next quarter also. It can't get worse than this, that much I can tell you.

Okay. Last question from my side. On one of your slides, you speak about a onetime product loss, roughly INR 10 crores. Could you help us understand what this is all about?

Yes, this was a product which we -- actually, we were in advanced discussions with an innovative company for supply of a particular API. So in anticipation of signing the contract, we had completed validations of this product. And in the process, we produced a sizable quantity of the product. Unfortunately, in the last minute, the contract could not materialize, and we had to write off the material. This was a calculated business risk, which is truly one-off, and we don't expect any such thing to happen in future again.

The next question is from the line of Harith Ahamed from Spark Capital.

This stimulus money of INR 13 crores, which is part of other income, is it strictly a onetime thing? Or can it recur for 1 or 2 more quarters? Or is it all included in this quarter's other income?

Yes, this is a onetime thing, Harith.

Yes. Sir, looking at your R&D spends for the year around INR 65 crores, and we'll end the year at maybe INR 85 crores to INR 90 crores. So this is a big lower or maybe significantly lower versus what we used to spend in FY '17 and '18. So should we look at R&D spend going up to earlier levels? And if you could help us understand why these spends have come down in recent years, especially this year?

So this year, a lot of our R&D spend has come down because of lack of availability -- of unavailability of people because of COVID. We -- but going forward, we will spend at least INR 150 crores, if not more. And whatever filings that we haven't been able to do this year will be moved on to next year. So next year, you can expect about 10 to 15 filings coming from GIL and GPI put together.

And then on the R&D expected spend, will it significantly increase from this year's number?

Sorry, can you just repeat that question?

No, the R&D spend for next year, is there a number that you can guide us towards?

So we're looking at INR 150 crores, but again we -- if things progress the way we expect them to, we're doing every -- we're setting up the teams to make sure that it does happen that way. I think it will go a little higher than INR 150 crores, but a minimum of INR 150 crores will be spent next year.

The next question is from the line of Darshit Shah from Nirvana Capital.

Sir, on the CapEx side, can you give some more clarity. So basically, if I understand, on the MUPS unit, we are spending INR 240 crores. On this greenfield project, for which we are spending INR 400 crores. And on the multi-API project, how much are we spending? And in total, what has been spent out of these 3 CapEx that we are planning, if you can give some more clarity?

So it's like this, Darshit. It's INR 240 crores plus INR 90 crores, which is about INR 330 crores. And regular CapEx of about INR 50 crores to INR 70 crores, so which is INR 400 crores, and another INR 400 crores. So INR 800 crores, which will take us till end of FY '25.

Okay. So this INR 800 crores -- and out of this, the multi-API and MUPS will be ready by the end of next year?

By end -- by Q4 of '22.

Yes.

So the MUPS will be ready by the end of... [Technical Difficulty]

Hello? Hello?

Members of the management...

Darshit?

Yes. Sir, so sorry, I was unable to hear Priyanka.

I was just saying that the Unit 5 API facility will be ready by June, July of this year. And the MUPS block -- this calendar year. And by December this calendar year, the MUPS block will be ready, it's not next year.

Great. And sir, on the earlier guidance, which we have put out, like 70% PAT growth this year and probably 30% over the base of FY '21 next year. Do we still stand by that?

Darshit, I think I would be a little cautious here and revise it a little bit. And so 70%, I would say, between 60% to 70% for this year. And next year onwards, 25% to 30%.

[Operator Instructions] The next question is from the line of Srihari from PCS Securities.

Primarily, I was interested in knowing the pricing scenario, mainly for paracetamol and metformin?

Can you please repeat what you're saying? You're really muffled. We can't hear what you're saying.

Yes. Is it clear now?

No, not really.

Sir, if you can come closer to the handset, please?

I'm pretty close. Yes, so basically, I wanted to know about the pricing of -- pricing scenario of the paracetamol and metformin? And for the latter in particular, if you can give some light -- long-term outlook because significant CapEx is scheduled by -- from these 2 products.

Sorry, we can't really -- can't understand what you are saying.

No, I think I got it. So were you mentioning -- were you talking about pricing of metformin and paracetamol now and going forward?

That's right.

Question?

Yes. That's right.

Yes. I mean due to increase in raw material prices on both these products, the finished product prices have started going up. And I think we should be able to pass on these increases to our customers.

And the impact of competition for metformin in terms of supplies?

There's always competition, but we were able to hold on to our market share. And we're sure that we'll continue to do so.

We actually just acquired like I said on my opening remarks, we transitioned the entire business from our one -- our old partner to our partner -- sorry, to our own label. And we were able to do it. And I think for a product like metformin, which is such an important product in the U.S. market and otherwise, the history of being able to supply the product consistently matters more than a couple of volume increases any more. So I think that's what matters more to our customers today.

Okay. Can you share the API sales for these 2 products? Or what the share -- what will be the share of API sales for these 2 products?

API sales, we don't want to get into product specifics at this point. But...

API -- for metformin, we don't sell much of API. Paracetamol, we do sell some. That's it.

I'm sorry, could you maybe repeat that?

Sorry, your voice is not getting clear. We are struggling to hear you.

The next question is from the line of Cyndrella Carvalho from Centrum Broking.

Just want to understand, sir, how is the scenario presently from an API perspective? You also mentioned about a product on the development side, which is a onetime loss that you have booked. So if you could give us using more strategy-wise color in terms of how the inquiries are coming and how is our position on the CRAMS side and all, if you are thinking of developing something? And the second question was, you have mentioned about a strategic partnership to boost your own products in terms of your strategy slide? So if you could elaborate more on that.

I'm again so sorry, I think there's some problem. Can you increase your volume here? And see, can you come back in short questions, please, so it will be easier for us to understand?

Okay. Sir, you referred to a product, which you said has a onetime loss. So I was just trying to understand if we could understand how is the queries or strategy around these kind of products from a market or a pharma perspective, overall strategy? Are we exploring these sides? And what is our positioning here, if I am clear?

Let me answer this first. So this -- actually, contract manufacturing, or CRAMS, is not in our strategy to date. However, we took this as an opportunistic product, and we tried to get in. And we were quite successful in the development of the product. However, I mean, for whatever reasons, I don't want to go into, the contract could not go through, and this is not part of our strategy going forward. Our strategy is to continue filing of products, high-volume products and -- or complex products and continue to market them ourselves. And concentrate mostly on finished dosages, but we integrated all the way backwards as much as possible and as many products as possible, and also to expand into other geographies, like we are doing right now into Europe, Canada and Australia and South Africa. So does that answer your question?

Yes, sir. Yes, that answers. The second part of the question is you have mentioned -- you have referred to strategic partnerships in your R&D or strategy slide. So if you could elaborate more on that?

See, I will take that question. So for the strategic relationships, what we always -- especially now, while every company is trying to be as cost dependent as it can, honestly, no company can be extremely cost dependent, especially if you look at the financial costs. So the goal of our company is to be as strong as we can be in the select number of molecules that we choose. And for that, there is a certain amount of integration that you have to work on. And by integration, you have to do as much backward integration as possible, even if that's, say, a chemical, for example. But they are independent from manufacturing field -- manufacturing back. So that's when we look with -- look at multiple players, and we look at their sourcing and what their strategic advantage is. And then we tie up with them to work with us and grow with us. That's how we see our future. Wherever we can, we will have our own intermediate, KSMs and APIs. But if a company is already well-established in that specific KSM or intermediate, we'd like to work with them and start up with them at -- on some levels. And that's what I meant by -- and that's what the slide meant on strategic relationships.

And if you could help us understand the slight caution on the management earlier provided guidance that you referred to. Could you help us understand why that slight caution is coming? Is it largely to do with the environment? Or if you could elaborate?

See, I think the question -- the answer in that -- is that everybody is unsure of what tomorrow goes. The geopolitical situations are changing so much that we are unaware of what tomorrow is going to be. So because of that, we have -- we are a little bit conservative now. That's one thing. And like I mentioned in my earlier remarks, we intentionally delayed the launch of a few products. Again, these are all because we wanted to build up enough quantities of inventory, and that in itself has resulted in some lower numbers. So that's primarily the reason. COVID, at the end of the day, it's all related to COVID. While we're working around it, we do want to be a little conservative at this point.

Okay. Priyanka, if I could squeeze in a last one, if you would allow?

Please go ahead.

Yes. I just wanted your thoughts on the metformin market presently in U.S.? And how is our positioning there?

Again -- so I'm not going to get into any numbers because of competitive reasons. But I will tell you that we have a very strong position on metformin. We have had it, we will have it, and we will continue to have it going forward.

The next question is from the line of Abdul Puranwala from Anand Rathi.

Sir, my first question is in relation to the gross margin. So I referred to the Slide #9 of your presentation, wherein -- I mean, it's mentioned that on an adjusted basis, the gross margins has just a slight decline of close to 40 bps. So could you please highlight that how exactly has -- the raw material pricing has been in this quarter? And what was the entire impact because just on the basis of adjusted numbers, I know the dip because of this raw material pricing doesn't look that very significant?

Sir, are you asking us how raw material prices impacted the gross margins?

Yes, that's correct.

So just quantify the raw material prices.

So if I understood your question, you are saying that since we are normalizing, we have seen a normalized kind of a percentage and explaining one-off items while we are saying that the impact or why we are conservatively saying that the impact of kind of these issues, are they getting seen by us, right? That's the question.

No. Sir, I was just talking about the quantification of what would have been raw material pricing, say, in Q2, or was there was Q3? Or was it Q2 where exactly the higher raw material pricing had started impacting the margins? This is what my question was.

Yes. So it will be very, very marginal. It will not be very significant. But the point is that, that will be felt in the gross margins. Here also, 0.9% is -- almost 1%. So 1% is also having -- is having some impact. So that's what we're trying to say.

Understood, sir. And sir, my next question is with regards to the CapEx plan. So sir, for the MUPS facility as well as for the new plant at the Genome Valley, sir, what is the kind of asset turn, which we would be looking out for these facilities? And what could be the time frame by which we could get to the peak utilization?

Sir, with your questions, can you repeat the first part of your question?

Yes. So the short -- my question was pertaining to the CapEx plan that is both at the MUPS unit as well as the new plant at the Genome Valley. I wanted to know what could be the asset turnaround -- of these new CapEx what is coming up? And what would be the time frame again to achieve the same?

It's a little difficult to explain the asset turns for the new facility at Genome Valley because it's still under planning. We are also looking at different dosage forms like I told you. So it's very, very preliminary. However, on the MUPS block, the asset turns will be much higher than what we are doing today, but that will happen after year 2 or 3. Definitely, that's going to have a better asset turn, and also that MUPS block will have a better return on investment also.

The next question is from the line of Runjhun Jain from Nirmal Bang.

Congratulations to the management team. Sir, rest of the questions have been answered. I just wanted 1, 2 clarifications. One is that you have said that because of the freight disruptions led to the loss of sales. Is it possible for you to quantify how much that is? And is it the permanent loss or is it just delayed to the next quarter?

It's not permanent loss at all, and we cannot quantify the loss of sales. But it was a sale -- loss of production and resultant loss of sales that, which I've just mentioned. And also some of the problem, we were able to overcome by air freighting. But yes, I would say somewhere -- I mean it's a little difficult to quantify, maybe we could do the calculations and get back to you later on.

Okay. Sir, just one clarification. In one of the answers you gave to one of the participants, you have said that, sorry, I missed that point, you said that 60% to 70% in FY '21 and 25% to 30% in FY '22. Sir, what was it regarding, sir?

This was the bottom line growth.

The next question is from the line of Charulata Gaidhani from Dalal & Broacha.

Yes. My question pertains to -- in the U.S., what is the proportion of Rx and OTC?

About 80% of our entire business comes from Rx and 20% comes from OTC.

Okay. Secondly, in the -- during the quarter, there is a high growth in the PFI. Where is this coming from?

This came primarily from the Latin American markets.

And also from some Asian markets also, Asian markets also are growing.

Okay. And GPI currently has 8 approvals. So how many launches have we done? And how many are pending?

So GPI doesn't have only 8 approvals. GPI has about 16 approvals, 8 of which we received this year. And like I mentioned, we launched about 7 products this past year, and we have about 10 more products that have already been approved that we have to launch. And we are expecting 2 more approvals this fiscal.

Okay. So currently, in the market, you have 7 products from GPI and -- in the U.S. And how many from Granules India?

We have about 4 products in Granules India in the U.S. right now. So total number products -- sorry, total number of products are 15. We have about 15 products approved from Granules India.

Yes. And launched are 4?

No. All the products have been launched, and it's a little -- I need to just take a step backward. The total number of launches and approvals are between the OTC and the Rx markets. So GIL, overall, we have 15 approved, out of which 14 have been launched -- 13, sorry, one we launched in January, so that doesn't come in this quarter. And GPI, we have about 16 approved, out of which we have about 8 to 9 launched. The remaining will be launched shortly. And we have 2 acquired ANDAs, out of which one has been launched, one has not been launched yet. And both of them are from GIL.

Okay. Yes. And how much has been the investment in MUPS?

In the MUPS block?

Yes.

The MUPS block, we said, is going to be INR 240 crores when it's completed, and we still have about 11 months to go. So far, we must have spent maybe about half of the INR 240 crores, about INR 100 crores or INR 110 crores.

Okay. Right. And that will get commissioned in Q4 of FY '22?

That's right.

Okay. Right. Fine. All right. In case of metformin ER, is the NDMA issue behind us?

Yes and no. So the 500 mg, which is about 92%, 95% of the market, that's completely behind us. The 750 mg, like I said over the last call as well, we know the root cause. We are -- we already took back and put them on stability. Now we're just waiting to correspond -- for the stability to get done with, then we're waiting to correspond with the FDA. So with all that, we should be able to relaunch the product into the market shortly.

Okay. Then that means another in...

[Operator Instructions] The next question is from the line of Deepan Shankar from Trustline PMS.

Yes. Just wanted to understand what proportion of metformin capacity for us is sold into U.S. market? And with higher supplies, are we expecting higher margins from that product?

See, the entire tablets we make for metformin goes to the U.S. as of today. However, like I said, from the last -- end of this quarter, some of it will start going to Europe. It will be negligible this year. But even next year, I expect that the majority will be to the U.S. only. And like I said, we sell a little bit of PFIs of metformin, otherwise mostly it's tablets. And the PFIs go to Latin America and also to the U.S. customers, if you -- one U.S. customer.

Okay. So in the U.S., all our customers, we have got approvals in place, and we can scale up the supplies?

So approval is for us. But in U.S., we sell tablets. PFI only, they need approvals. There is one customer who has been buying it for many, many years. So we make tablets and sell them in the U.S., and we've got a decent share of the market.

The next question is from the line of Shrikant Akolkar from Ashika Stock Broking.

Can we get core molecules contribution during the quarter?

Sorry, contribution of?

Core molecules.

It's about 84%.

84%. Okay. So last quarter, it was 70%. It has gone up. So progressively, how do we see core molecules contributing going forward?

No, I think, Shrikant, I apologize for last call's comment, that was 84% -- 83%, 84%. I think I gave you the wrong number, by mistake. But it's been at 80%, 85% over the last couple of quarters. And going forward, once we have more of our larger products from India commercialize, then this 84% will get to about 60%, 65% by FY '25. Just one thing I'd like to add to here is that core molecules doesn't mean that we're only commercializing those core molecules in the U.S. There will be growth in terms of absolute numbers because we are doing a lot of global expansion of these molecules. And -- but there will be a significant contribution coming from all the new products as well.

Okay. The next question is on the capacity utilization, now that we are talking a lot on the new CapEx. So just wanted to understand the capacity utilization at the key facilities?

All our facilities today are working to full capacity. Okay, formulations, I would say, 85% capacity. And the only plant that is not working to full capacity is our Vizag unit, Unit 5, where we have multi-API and Onco, that's working at around 20% capacity as of today.

Okay. And the next question is on the reliance on the China raw material. Now we are seeing some increase in the raw material prices. So -- and we are also seeing that the PLI scheme has been announced and few companies are also investing. So on -- in that background, how do we see the raw material consumption that we have from China? And how do we see, probably next year, how much it will be?

You are talking of only raw material, right?

Yes. I mean the key starting material and APIs if we are sourcing from China directly?

It depends on product to product. The prices have been varying. Some products have gone up by 40%, some products by 5%. Overall, I would say, anywhere from 10% to 15% have been the price increases. And however, if I understood your question, maybe you're talking about new investments in India for key KSMs. We are -- we have already tied up with a few people here for supplying of KSMs to us. And going forward, within a year or maybe in 14, 15 months, we should be able to start getting material from them and our dependency on China will be reduced.

Okay. And can I ask one more question?

Go ahead, quickly, please.

Yes. Just wanted to understand about the -- our market share in metformin at the moment. And with the new RLD approval, where do we end up? I mean what are the ambitions in metformin for the next year?

We cannot really talk about market shares because, like we were saying before, it's a sensitive information for competition. However, our market share with -- is likely to go up a bit, and we look to retain it. We want to be healthy. We don't want to take on more and more of the market. It has to be a healthy competition. So it will be capped at a certain level that is going to be -- it's a sizable market, that's all I can tell you.

The new product that we have approved is the Glumetza. That's a very low-volume, but high-value product. We are going to be launching that shortly. But once we launch, we'll see where we stand. But I'm very confident that we'll be able to get our target market.

The next question is a follow-up from the line of Harith Ahamed from Spark Capital.

So in your opening remarks, you mentioned a few products apart from Glumetza that you'll be launching over the next few quarters like potassium chloride, and then Focalin XR, penicillamine. So can you help me with the time lines, again, I missed what you mentioned in your opening remarks? And I'm also thinking in terms of our strategy for gaining market shares in these. As I understand, some of these are already fairly competitive. So how should we think of market share gains when we launch these products? Is it going to be gradual?

So in terms of the strategy, each product has an individual strategy because it falls within a different product category. So I can't give you a blanket-like strategy. But that said, each one has its own value proposition. Even though the competitive landscape is heavy, it's -- the landscape hasn't changed much since we got into the market. Now for dexmethylphenidate, for example, there are 5, 6 players already, but we know what will take us to our target market. And in terms of the time lines, we should be able to launch Klor-Con M by Q1, early Q1; dexmethylphenidate, we've already launched it; and the other products will be launched shortly.

Ladies and gentlemen, I now hand the conference over to the management for closing comments.

So ladies and gentlemen, thank you very much for attending our call. Due to little disturbance in the audio, we were not able to really hear and communicate well. So like I said, this quarter, we had some challenges. We expect challenges to continue into next quarter. However, I'd say, overall, year-on-year, growth is going to be very, very healthy. And we also expect to have a healthy growth going on from there. And like I said, 25% to 30% year-on-year growth in bottom line is what we expect. And again, I would like to clarify and totally deny that there is absolutely no divestment of the company going to happen. So with this, ladies and gentlemen, once again, thank you very much.

Thank you. Ladies and gentlemen, on behalf of Emkay Global Financial Services, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.