Granules India Limited (532482) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Granules India Q1 FY '22 Earnings Conference Call hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kunal Dhamesha from Emkay Global Financial Services. Thank you, and over to you, sir.

Thank you. Good evening, everyone. I would like to welcome the management and thank them for providing 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 the management for their opening remarks. Over to you.

Thank you, Kunal. A very good afternoon, ladies and gentlemen. Thank you very much for attending our Q1 earnings call. I hope everyone of you and your family members are vaccinated and continue to be safe. I'm happy to announce that we have vaccinated all our workforce, and we continue to support our staff and their families with all the needed medical support and psychological counseling. As part of our support to society, we have donated a sizable number of paracetamol tablets to the government of Telangana. We are also setting up an oxygen generator close to our facilities at a government center. Continuing from our last interaction, availability of para-aminophenol, a key raw material for paracetamol, was a great challenge during Q1. We see the situation start to ease up in the current quarter. Domestic production has started with 1 company and another company is expected to start in a few months. In addition, a few new plants in China are coming up, and also the plant that had shut down is likely to recommence production in a few months. Our expansion of formulations business into new geographies had started. And as you are aware, we have approvals for two of our existing products in Europe. While we await further approvals of the already filed products and continue to file more, we are close to signing an out-licensing deal with a few companies in Europe for the approved products. We had also received an approval for one product each in Latin America and Canada. They were launched through partners already. We will continue to expand our marketing footprint into Canada, Latin America and South Africa going forward. This will be a new initiative in these geographies where we were selling only APIs and PFIs and also doing certain CMO businesses or formulations in the past. We continue to be focused on strengthening our position and growing our core molecules with continuous innovation while launching new products in the existing and new geographies. Our strength on our core molecules is driven by vertical integration across the value chain along with innovation in manufacturing. This has been our philosophy all along. As a continuation of this philosophy, most of our high-volume new products are also fully integrated and in some cases, right from the KSM level. Needless to say, every product has a certain level of innovation in the manufacturing, leading to cost leadership. While our core molecules continue to grow due to expanding wallet share in existing markets and addition of new geographies, we expect our new launches to overtake this growth over a period. We expect the share of other products to be above 40% by FY '25. I would also like to explain the strategy on our investments in Unit-IV the erstwhile Auctus plant, which we acquired many years ago. Unit-V, which is our multipurpose API facility and facility for high-potent APIs and formulations, too. I will also address a strategy for Granules Pharmaceuticals in the U.S. Coming to Unit-IV in Vizag, we have 16 APIs commercialized from here, and 4 of these are currently used for our existing formulations. Out of the rest, we have filed and will file ANDAs and EU dossiers using 5 more APIs. The value of this plant will be unleashed through these formulations. This plant contributes a sizable value to the strategy and profitability of the company. Unit-V, the new facility at Vizag, we have filed DMFs or CEPs for 4 APIs in the high-potent segment and 6 APIs in the non-high-potent segments. On the high-potent formulation site, we will wait for some more time to file our own dossiers, and we'll continue to market only APIs for the time being. We are currently validating some CMO formulations. And this site will see decent revenues on both these fronts shortly. Five non-high-potent APIs filed from here are for captive consumption for our own formulation filings, and more APIs are being filed from here, which will be used for captive consumption. These APIs will help drive the cost efficiencies of our new formulation filings and will help us in being more profitable. At Granules Pharmaceuticals in the U.S., I'm happy to mention that we had a pre-approval inspection by the U.S. FDA recently and received the EIR within 25 days of completion of the inspection. We expect approval of 3 products covered by the inspection within the goal dates . At GPI, we have 2 arms: one is for manufacture of Rx formulations, and the other is the front-end for marketing all the formulations from Granules India and GPI, except one product, which we have licensed out to a partner. The focus at GPI portfolio is products in the C2 segment, which is the controlled substances and a few other products. We have also 2 products approved in the opioid category, but have not launched them due to the current legal and tax uncertainties. We expect to launch them once we have clarity on this situation. These are products based on paracetamol API and will add immense value due to the integration when launched. In addition, we are transferring some of the existing products manufactured at Granules India to the site at GPI to be qualified for bidding for the VA business, which is the government business of the U.S. We have recently expanded capacity at GPI and the VA business will add a great value to GPI. We have another subsidiary Granules USA in the U.S. This subsidiary was established in the year 2003 as a front-end marketing arm for APIs and PFIs. GUSA was offering OTC and Rx finished dosages to B2B customers in the past. We now transferred all the Rx formulations to the GPI front-end marketing and GUSA now handles APIs, PFIs and OTC formulations. In addition to B2B, GUSA has a separate division, Granules Consumer Health, which handles the front-end private label OTC marketing. This division was started in the year 2015, and the growth has accelerated from last year. We are quite excited about the prospects of this business. On the capacity expansion front, the MUPS block is on schedule and expected to be qualified and ready by Q4. We have 2 MUPS products approved from this facility, and this will only need a small portion of the capacity of the plant. Till the already filed products and to-be filed products are approved, we'll be using this block for manufacturing non-MUPS products also. As we start using it for more MUPS products, we'll start seeing the actual potential. We expect the MUPS capacity to be fully utilized by FY '25. Based on our current strategy and plans, we'll be out of capacity by FY '25. To be able to cater to our requirements, the new plant at Genome Valley should be FDA approved and operational by then. Since this is a greenfield facility, the approval period is longer and to meet our deadline, we need to start construction at the earliest. We are taking new initiatives with respect to ESG. CRISIL has ranked us at 53 points, which is the median range among Indian pharmaceutical companies. We have set up a separate team for ESG and are taking up new initiatives to reduce carbon footprint and to reach a higher rating. Before we go into Q&A, Priyanka will take you through a few important numbers and events. Over to you, Priyanka.

Thank you. Good evening, everybody. Hope all of you and your families are doing well. We are very happy to announce a good set of numbers for Q1 FY '22 despite the myriad of challenges posed by various business scenarios in the backdrop of COVID and logistics disruptions resulting in a shortage of raw material and lower utilization of capacity, especially paracetamol. The first quarter revenue was INR 850 crores as compared to INR 736 crores in Q1 FY '21. Our increased sales from existing products and new launches had compensated for the loss of MEIS benefits. We had a good revenue share from our existing molecules and a sizable revenue share from our new launches, which enabled us to achieve the 16% year-on-year growth. As indicated by our CMD in his speech, we expect the raw material shortages on paracetamol to be resolved over the next couple of months, which would enable us to have a better H2 FY '22. The sales breakup as per the business verticals and regions are presented in our investor presentation, which is available on the website. For the quarter, the gross margins contracted from 59.5% in Q1 FY '21 to 54.2% in Q1 FY '22, mainly due to the reduction in margins on paracetamol due to increased KSM pricing. Favorable ForEx in Q1 FY '21 and airfreight collected from customers were a part of the top line, which were added to the gross margin in Q1 FY '21. Those weren't added this quarter. EBITDA and EBITDA margins. EBITDA for the quarter was INR 201 crores when compared to INR 184 crores in Q1 of FY '21, an increase of 10%. The EBITDA margin drop is on account of lower profitability on paracetamol products and higher logistics expenses. The PAT for the quarter stood at INR 120 crores, an increase of 8% over the previous year, attributed to all the reasons as specified above. ESG. As suggested in the previous quarter that we were committed to grow our company in a responsible way, a certain part of our CapEx spend has been allocated for ESG activities. Focus on ESG is continuing. And as a part of this initiative, the company has identified areas of improvement and initiated carbon & emission, water & waste foot printing exercise and has taken up operational excellence projects in these areas. We are committed to improving our ESG ratings across the health care industry and aspire to be one of the most sustainable businesses by benchmarking the best-in-class practices. Our R&D spend for the quarter stood at INR 27 crores compared to INR 20 crores in the previous year. We will accelerate our R&D spend in the subsequent months. During the quarter, we filed one ANDA, two EU dossiers, one U.K. dossier and one South African dossier. While the EU and South African dossiers and the U.K. dossier are global extensions of the finished dosages that we are already very strong in, in the U.S. market, the ANDA we've filed in, in the U.S. is a high-volume hypertensive that we are completely backward integrated in. This quarter, we have received an approval for one dossier, which we have launched already. Within the MUPS category, as stated over the last call, we have 5 products approved with one pending a launch. These are within the C2 and mineral supplement categories. In addition to this, we have another 15 MUPS products under development in the EU -- sorry, in the U.S. and EU regions under different therapeutic areas, including PPIs, antidepressants and antihypertensives. We will be integrated directly or will have strategic partnerships in all these products with an integration to the KSM level for most products. A breakup of the 69 filings made so far has been made available in the investor presentation. Net debt. Our net debt increased by INR 55 crores on account of increase in our short-term borrowings due to a significant increase in our inventories and receivables due to the increased business requirements, both on the raw material and finished goods front. On the raw materials front, we stocked up due to potential COVID disruptions. We have a few high-volume products that we are launching in the U.S., for which we have been carrying a significant amount of inventory. As we keep ramping up to reach our target market share, the inventory will be depleted. I think it's important for us to note that when we bid for our front-end business in the U.S., it's very important to have the product readily available. There is a significant advantage in being able to launch immediately versus having a ramp-up time. Hence, we will build inventory in the U.S. in both packaged and finished formats to ensure we have the best ammunition possible to achieve our target market share. The inventory levels will keep fluctuating as we had new launches and settled to a certain extent on market share for products we have already launched. This is the nature of the business, and we are taking very calculated risks when we make these decisions. Cash-to-cash cycle. Our cash-to-cash cycle increased from 117 days to 145 days, mainly on account of increase in inventory, which we are consciously building on account of new launches and also to tide over any crisis due to COVID or other disruptions. Our ratios, as referred to in the earnings presentation, is also showing a drop in the current quarter due to the reasons mentioned above. Significant actions have been planned over the next 8 months, and we are confident that those ratios will be back on track very soon. Our operational cash flow for the quarter stood at INR 133 crores. And during the previous year, the amount was INR 82 crores, mainly on account of better operational profit over the lower previous year's base. We had a negative free cash of INR 30 crores due to a planned CapEx spend of INR 163 crores versus a budget of INR 400 crores for the entire year. With that, I'd like to open the floor for questions.

[Operator Instructions] The first question is from the line of Rashmi Sancheti from Incred Capital.

Congratulations on good set of numbers. So one question on gross margin. Whatever quarter-on-quarter dips we have seen, that is completely impacted due to the higher KSM prices of paracetamol? Or there is some offset which is done by the new product launches during the quarter? So if you can explain the exact impact which is coming from the high KSM prices?

Rashmi, it's partly due to high KSM, but as Priyanka has explained, in the Q1 of FY '21, we had airfreights in the sales revenue added up. So the gross margin has gone up. In addition -- what was the other one?

MEIS.

MEIS also was there in the Q1. All these have resulted in a drop in gross margin, but one of the main reasons is KSM price increases.

Sir, this is on the Y-o-Y basis. I was asking on a quarter-on-quarter basis, like compared to quarter 4 FY '21, whatever that 300 basis points, which we are seeing the dip, does 300 bps exactly comes from the KSM? Or it might be a little higher, but it might have offset by some product launches -- some good product launches in the U.S. or the other geographies?

It's a little higher, Rashmi. I think you've got it right, but some margins in other products have increased. But again, a little bit here and there, but mainly it's due to KSM increases.

Comes from the KSM part, right?

That's right. Yes.

Yes. And sir, related to paracetamol utilization, it was lower earlier. So can you just let us know because I think it has contributed 36% of the overall sales. Is it something that the utilization has already gone high now? Or it is still at 50%, 60%?

Rashmi, we are talking about revenue here. As you -- as I have explained during my last call, the increase in KSM prices have also led to an increase in selling prices. Actually, selling prices have gone up as high as 70%. So the numbers you see in revenue is not really reflective of the volume of sales we are doing.

Capacity still at 60%.

Capacity still is at 60% only.

And by what time we will see that it will become 100%?

I think Q4, definitely, but towards the end of Q3 or middle of Q3, we will see a very good improvement.

Sir, lastly on the PFI growth. Last year, FY '21 was also very strong; first quarter of FY '22 also, we are seeing a very strong growth in PFI. So what is driving this growth? Is it that we are getting some repeat orders? Or we have added some new molecules in PFI space? Or we have added new geographies? If you can just guide us for the full year also, how it would look like?

The main reason is new geographies, Rashmi, and partly in small percent due to new products. And these ratios keep fluctuating quarter-on-quarter. But on the whole year, it will be -- I would say, we will maintain the same percentage growth.

[Operator Instructions] The next question is from the line of Ranvir Singh from Sunidhi Securities.

Sir, on paracetamol or ibuprofen, can you help me understand the volume growth during this quarter?

Compared to quarter-on-quarter or?

Y-on-Y? Or if you could give even Q-on-Q, that will also -- but because you have given that breakup this quarter, so better to give Y-on-Y so that I can understand it.

Do you -- go ahead. No, you go ahead, Sandip. Take that Sandip.

Paracetamol has kind of -- quarter 1 versus quarter 1 of the last year, from 2394, it has gone to 2,268 tonnes.

You are talking about production volume or this is sales of paracetamol?

We are talking about sales quantity.

In terms of tonnage.

But Ranvir, the revenues do not mean much because like I said, paracetamol prices are unrealistically high at this point in time, even though the margins are not high because price -- selling prices are very high. So the revenue numbers do not make any sense today.

Yes. Actually, that's why I'm asking this question because even in ibuprofen, we see a drop in revenue Y-o-Y basis. So I wanted to understand whether it's due to pricing, our volume is intact. We are growing in volume, but price is actually making a difference? Our volume has also gone down especially in ibuprofen?

Ibuprofen and the prescription Rx, the volumes have gone down. Because of COVID, there's an impact on consumption of ibuprofen. Paracetamol has gone up a bit. The demand is there, but ibu has come down and we expect that it should start improving, the situation on ibu as we go forward.

Okay. We'll -- maybe in off-line, we will take the production volume of other segments also. Or if you could give because in API, we used to have this production volume earlier. So if you could give even later, that will help.

Maybe we will do that later. Yes.

Yes, yes. And secondly, in PFI, the growth has been very good for the last few quarters. So which geography is actually contributing? Earlier, the Latin America was a key market, which I understand. So this is only addition of geography or in existing geography also, we see in certain pocket growth is being very high?

Yes, Lat Am has increased to a certain extent in the existing geographies, but new geographies also have been added, like some of the Asian markets and African markets -- North African markets.

So these geography is just an opportunistic or strategically, we are going to stay there in the geography and grow?

In PFI business, there's no opportunistic sales because when people want to use a PFI, they have to register the product with their local authorities, and it takes a long time. And somebody who has invested so much time and effort will not stop buying. So we have not actually lost any big sales in any of the customers till date right from many years.

[Operator Instructions] The next question is from the line of Rashmi Sancheti from Incred Capital.

Sir, again talking about the U.S. market, this quarter how many products we have launched? And what would be the market size for those products?

Okay. Priyanka, why don't you take this?

Sorry to interrupt. Ms. Sancheti, there is a disturbance coming from your line. Request you to mute your lines, while the management answers your questions.

Priyanka, you're taking that? Yes. Take that, Priyanka.

This quarter, we only launched one product in the U.S., which is a large volume product. And the market size is north of $100 million.

And what would be the R&D guidance? And what would be your new launches' guidance for this particular year as a whole? And one more question on gross margins. Do you see that this -- currently, whatever lower gross margins, which we were expecting due to high KSM, is already done in this quarter? Or are we going to see the impact coming in second quarter also?

So let me take the gross margin question, Rashmi. Gross margins are a result of so many factors, including inventory buildups and so many issues. And also, there are so many logistic uncertainties today. So I would not be able to say what the gross margins are going to be. But one thing is, by a mix of gross margins or revenues, we definitely have our plans to achieve our bottom line expectations. So gross margins can change here and there. And that's what I've been saying right from beginning, it's the bottom line that matters. Gross margins do not really matter.

Okay. And sir, on launches part for U.S.?

Priyanka, you want to make a go for that?

For R&D?

The R&D guidance and the total launches in the U.S. market, the guidance for that for this particular year?

So R&D will be -- we will be spending higher money in terms of R&D spend as we progress for the year. And it will not be proportion to this quarter's spend. It will be more than that. And definitely, we will be having the R&D budget kind of tweaked in a manner when it is required. So the total R&D spend will be in the region of around INR 140 crores to INR 150 crores by the end of the year.

Rashmi, on the launches, I think this year, we'll be doing close to anywhere between 8 to 10 launches. And the value of these new products can be upwards of $150 million.

And sir, my last one question. On your core molecules, if you can let us know, out of this 4, 5 products, for which products we are backward integrated in terms of its starting raw materials and all?

I think we can -- we are not backward integrated for any of these products with regard to KSMs. Only the integration stops at API level. The new products we are launching or filed for already, most of them go back all the way to KSMs.

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

Congratulations on a reasonable set of numbers in a very challenging environment. So a couple of things. One is that on the MEIS, have you provided for anything in the current quarter? What are you hearing from your sources in the government? We are hearing some very conflicting views. Some people say that 2% will be restored, some people are saying nothing will be restored. What are you hearing? And what have you provided for in the June quarter?

Yes, Ashwini, I will take this. So we have provided in -- MEIS will be based on the government guideline. So we have not provided 1 single paisa, which is beyond whatever was the guideline given by the government. That means, when they restricted the September to December quarter to the extent of INR 2 crores, we have actually recognized only INR 2 crores. And therefore, the entire amount of money that is lying with the government, we believe that those are collectible amounts. And you are absolutely right that there are many kind of things which is going in the market that whether this scheme in the form of RoDTEP, how much benefit it will bring to the table or not, but we don't see any reason that why we believe -- we should be believing that MEIS money will be at risk at this stage. And this is consistent with most of the company's practice.

And from January to June...

Ashwini, to answer your question straight, this quarter, nothing was provided, Ashwini. And 2 quarters -- last 2 quarters of last year also, nothing was provided.

Correct. We have only provided up to December. That too up to the limit.

Up to December, INR 2 crores per month or whatever that guidance was between September and December. And what is the receivable from the government on the account of MEIS?

Around INR 30 crores.

4-0?

3-0.

3-0, 3-0, okay. All right. The other question I had on the core of your portfolio. I mean that's remained reasonably stable around 85%, 86% of your revenue. And you're right, revenue sometimes can be misleading because prices for various products move up and down quite sharply. paracetamol is high today, ibuprofen was higher a couple of years ago and so on. How do you see the opportunity to grow because these are very stable molecules. So obviously, you're winning market share from someone. So can you help me understand what's going on in these 2 or 3 major molecules, specifically paracetamol, metformin, ibuprofen, methocarbamol and guaifenesin, which are very big for you? What's happening on a global basis? Who's moving out, allowing you the elbow room to move in if that is indeed the case?

I think to answer -- Priyanka, you want to go for it?

Yes. I'll take that. So I'll just give you a little bit of a landscape of each of the products. And like you rightfully said, these are products that are here to stay. But with COVID, we've seen a little bit of an uptick in a few products and a little bit of a drop in some other products. So if you have to talk about metformin, metformin has been growing at a higher single-digit rate over the last couple of years. And we have launched 2 -- 1 big product in the U.S. market, and we've done some filings in the other markets. But we've been able to penetrate the market not only because -- or we've been able to do our numbers not only because of the growing market, but also because we've made really good inroads even at this time when there has been additional competition. So I think we've maintained our market share for the IR product, and we've really increased our market share for the other products, the XR, in the U.S. over the last couple of years. And a lot of it has to do with our ability to meet the existing pricing demand from that market and also our consistency of supply. And third is the confidence that we've been able to give our customers about the whole MDMA issue. Now with paracetamol, we have seen an uptick in demand overall globally for the obvious reasons. And that has just been limited by -- currently, our ability to supply. The demand will remain not only because of COVID, but also because we have a few products where we have been able to scale up considerably for -- on the OTC side of the U.S. Same thing with the global presence. We are continuing to do a large number of filings for paracetamol in the rest of the world, and that will see an increase in demand as well. Ibuprofen, we've seen a decline primarily because of the COVID-related issues that we have, where overall demand for ibuprofen has gone down by about 6% to 8% year-on-year over the last 1.5 years. But we are increasing -- we've seen this product, the demand going up over the last couple of months, and we see this to be normalized over the next couple of quarters as well. Now MCB and -- guaifenesin is another product where we saw some decline in numbers because of the cough and cold season. But now that at least America and some part of Europe have been pretty much back to normal, we see this to be normalized again. And we have our new launches in the U.S. with which we'll be able to pick up more market share. Finally, methocarbamol, that's a small part of our business, but it is still considered our core. We've been -- we entered the market in a shortage situation. We've maintained -- we've given up some markets since then, but now over the last couple of quarters, we've been able to maintain our market share. And now without even trying, we've gained the market because the other suppliers are not able to supply this product. So this is a broad level landscape of the 5 core molecules.

So leading from there, Priyanka, if you were to look out, let's say, 3 years from now, fiscal '25 or thereabout, how do you see this 85-15 broad split between core and others shift or that shift is going to be very gradual because your core is also growing quite well. How do you think about this?

Priyanka, I'll take that question. Ashwini, the shift actually is partly because the value-added growth is also happening not just -- because the shift is happening from API to PFIs and PFIs to formulations, where there's a good value add. And also, it is new geographies like other markets. The future growth is going to come from new geographies. So we expect a growth of about 8% to 12% on core molecules going forward in the next few years, and we expect that noncore molecules should grow around 50% CAGR.

Okay. And lastly, is there any change to your CapEx plans of INR 400 crores for the current year? Or despite the relatively large CapEx we've seen in first -- 1Q, it will remain on track at around INR 400 crores?

Yes. Go ahead, go ahead.

There is no change in the plan, Ashwini. The only thing is that in quarter 1, the spending was INR 163 crores. And by the end of the fiscal, we'll be spending around INR 400 crores as we have planned. So this quarter, the spending was a little high side, yes. It was planned actually.

And coming back to that RoDTEP/MEIS question, any sense you have from industry consultations or from preliminary conversations with the government? I mean, for example, for textiles, we are hearing that it might come in at about 2%. Any sort of hints that you have, which -- what it might be -- or what would it be if you were to actually add up the duties and taxes that the government should remit back to you?

Yes. So whatever information and the exchange of communication that we have had with our peer group and also some of the government facilities, we believe that RoDTEP will come into existence for sure. And provided the percentage will be a little less than the MEIS, although the data that they collected for kind of understanding that what is the industry's requirement, that was very encouraging and included a lot of things which we were not getting earlier. So -- but probably reality would be a little bit little lower than the MEIS scheme. But the scheme will come definitely.

And up to September before they came out with this truncated INR 2 crore number, what was the percentage? It was roughly about 4%, correct?

No, no. It was 3%.

3%. Okay. All right. So that -- I mean, if you compare year-on-year, when we look at gross margins, 3% is a straight away MEIS impact on gross margins. Would that be the right way to think about it?

Yes, 3% of export was the thing.

Most of it.

Yes. So...

Most of it, okay.

Yes, yes. So that is a straightforward kind of a deduction.

Yes, Ashwini, you're right.

Yes. So I mean, assuming that -- I don't know, again, when the government will reinstate the RoDTEP plan. It's been overdue for more than 6 months. But if it were to come through, we should see an improvement in gross margin profile immediately by whatever, 1%, 2%, 3%, whatever they offer.

It should technically...

Correction for one figure. It is not 3%, it is 1.5%.

1.5%.

On the margin, yes. So margin impact is 1.5%, which is an absolute loss when this scheme is not there.

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

Just -- if you could just recap in terms of noncore molecules, what CAGR are you guiding for?

Around 50% is what we are planning.

1-5? 15?

5-0.

5-0. And secondly, just considering the working capital needs and the CapEx, the net debt figure for FY '22 would be how much?

Net debt, it could vary depending on so many factors, Tushar. The new launches and so many things will happen. So we definitely think it should not increase. We are aiming for that, but there could be temporary peaks. Just like this quarter, there's a little increase, But it should keep coming down.

I am a little bit nervous in giving the number, but it should be 700 to 750 net debt.

For FY '22?

Yes, March.

And as you know, all this is only working capital debt.

[Operator Instructions] The next question is from the line of Mitesh Shah from ICICIdirect.

Congratulations for the good set of numbers. Your guidance about the top 5 products was 8% to 10% going forward. But historically, if I can see then in the last 5 years, the growth was tremendous, around 18% CAGR. I think you still have a scope towards geographical expansion and new launches. So why this single digit -- your expectation on these 5 molecules?

The base is high today, Mitesh. And clearly, it has to be much more, you can imagine what our growth -- overall growth is going to be.

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

Sorry, there was one question I forgot to ask. What are you seeing on shipping schedules and shipping rates? Are things starting to ease up at all? Or it continues to be high shipping rates and patchy shipping schedules? What's the outlook here?

It's worsening, Ashwini. It's going -- it went bad to worse. I don't know from worse to where it will go. Actually, last few days, there have been a typhoon in Ningbo port and the Shanghai port, and there were pictures and videos of continuous flying away and total disruption and costs have drastically gone up. That's why I think Priyanka was mentioning logistics costs. So we don't know when it's going to come back to normal. We are learning to live with all these new problems. That's the funny thing.

So I mean, would it be fair to think about kind of -- are you able to pass on these costs or some of these costs you're being forced to keep as a margin hit, shipping costs, higher inventory carrying costs, I mean raw materials? You did mention that you're starting to see some respite. But obviously, it's taken a little bit of a hit on your gross margin. So on shipping, I mean, eventually, it will normalize. I mean this is very abnormal, the environment we are living in. How do you think about it?

We're not able to -- certain reasonable cost increases, we were able to pass on in the past. But now overall, the situation is, there's a lot of cost increase. I mean logistics also is a big, big number. But then it's not always possible to pass on because there's always a competitor who is always ready. So our main target today is to keep defending our business and retain our market share and growing it. So we don't want to be too aggressive on, I mean, trying to pass on costs. APIs to a certain extent, it may be possible. PFIs to a certain extent, it's possible, to a certain extent. But beyond a certain level, people will say, I don't want to manufacture this product. So that's the situation. And then formulation side, of course, you know about the U.S. price pressure. So we'll have to balance it very carefully. There's no way we can pass on everything to the customers.

And is part of the inventory increase also because of longer shipping cycles? Is that also a factor in addition to shortage and uncertainty planning?

Yes, Ashwini, very much. And we want to avoid airfreights. In case there is a penalty, it will be high. And so we are stocking excessively. And also partly because we are expecting a quick ramp-up of the business.

The next question is from the line of Abhishek Jain from Arihant Capital.

Sir, 2 questions. One is how are the pricing going after June, we have seen, especially for the key products or 5 core products? Especially on the paracetamol and ibuprofen, how the realizations are there right now? And how much inventories are there right now with the customers right now?

Customers -- the inventories with customers have sort of normalized, Abhishek, long ago. So they are only ordering what they need. They're not excessively stocking. So only the inventory seems to be a little high with our side, but customers definitely have normalized their inventory levels of all products.

And how is the pricing, sir, of the -- especially paracetamol and ibuprofen?

Paracetamol, like I said, because of the increase in cost, our prices have gone up. So no competition can be operating at a total loss. So everybody gets a price increase. Ibuprofen has been a slight drop, not too much. But volumes of ibuprofen have dropped because there's no demand.

Okay. And what are the volumes for ibuprofen for Q1? I'm extremely sorry if it's been there in the presentation.

It's in the presentation. Ibuprofen...

Volume is not there.

Not volume, value is there. But volumes, we are not sharing at this point of time, Abhishek.

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

In your opening remarks, you commented on your Unit-V facility at Vizag and your U.S. facility. Could you please repeat those comments? My line got cut off. So I missed that part.

Okay. On the Unit-V, we said that there are 2 blocks there. One is for high potent, which is mostly onco, APIs and FDs. And the other thing is a multipurpose plant, which we are actually expanding capacity right now. So out of this site, we have 4 DMFs or CEPs for APIs in the high-potent segment and 6 APIs in the non-high-potent segment. So on the formulation side, we have decided not to file any dossiers today on the onco. But we are doing contract manufacturing business for other companies. So validations are going on, and we expect revenues from the contract manufacturing business to come in and also from some of the onco API sales to come in. But the non-onco, out of the 6 filed, 5 are for captive consumption, and we have used these APIs to file for our ANDAs and dossiers. So like I said, the entire value of this site will be unleashed through our formulations as and when they are approved. And Granules USA, we said we have 2 areas of operation there. One is local manufacturing, and the other one is the marketing front end. The front-end markets, Granules India products and GPI products together. And the focus there for local manufacturing is mostly the controlled substance segment, of which we have a few products already launched and also some niche products. Also, we are validating -- we are transferring some of the ANDAs from this site, existing products from India to U.S. in that site so that we can address the VA business. And as you are aware, these VA contracts are for 3 to 5 years, and that will be a nice piece of business to have. And the -- this business, when it happens, is really going to add a lot of value to GPI.

Okay. For the controlled substance products, some of those, we've already received approvals and launched. How has the ramp-up been for those products?

Priyanka, do you want to take that?

Sure. We have launched about 4 to 5 controlled substances so far. And I think we've done really well on most of them. We have a majority of the market on all of them.

The last question is from the line of Madhu Kela from MK Ventures.

Congratulations on a good set of numbers. So my question is beyond quarters and all these small issues. I wanted to ask you, sir, what is the strategic intent of you and the whole family? What will Granules look like, let's say, 5 years down the line? How it will change from the current Granules? And as you are not talking about numbers, more of a strategy, more of a strategic intent, have you alluded that it will be more formulation company than the API and PFI, which has been traditionally? Will we see a lot of other changes than what it looks like?

Definitely...

For the sake of everyone, can you just confirm once and for all because these rumors keep coming in that you are not looking to do any transaction with anyone, at least for the -- in any foreseeable future. Because makes me nervous personally, sir, because we have invested on you, we don't know who the other person is.

Madhu, I think -- I don't know how many times I have to keep on refuting this. Since you have asked me a question that...

Yes, please do it once again, sir. So that it is clear to everyone.

I will, I will. So definitely, there is no, no way we are going to exit. And I can tell you, we have our plans made out, our target set up for the company. And a detailed strategic plan is being worked out for many, many years. But at least 3 years, we have very good visibility. We have our targets, and we are all very serious in working to achieve these targets. And on how the company is going to look like, I can tell you, yes, the solid orals business, what we are doing today, there's still a lot of potential left. We'll be extracting all the potential out of this because this has been really our key strength, operational efficiencies, innovative manufacturing. We'll extract everything out of this. And move into a few other areas, and it's going to be very complex manufacturing from now onwards. We will be addressing for the future 3 years from today. We have to start working today on very complex molecules. That work will start, and we'll be making not only this high volume manufacturing efficiency-driven products, but we'll be manufacturing technology-driven process -- products in future.

Okay. Sir, aspirationally -- pardon me asking you so directly, aspirationally, all of us have aspirations that I will be like that. Do you have any company in India or global where you think Granules could be like that 5 years from now?

No, I can speak of different companies for different aspects of what we are doing. And there could actually be companies in the non-pharma segment. If you go into nutritional side or food industry, there, we may have some companies which operate like us. But pharma generally, as you can see, our model is a lot differentiated from what others do. And I cannot say I want to be like some other company. We have created our own space, our own model, and we want to keep growing in this model.

I would now like to hand the conference over to Ms. Gowri for closing comments.

Thank you, Malika. I would like to take this opportunity to remind everyone about the safe harbor related to this conference call. Today's discussion might have been 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 that could cause future results, performance or achievements to differ from what may have been expressed. Thank you. With this, I now hand over the call to the management for their closing comments. Thank you, and over to you, sir.

So once again, thank you a lot, everybody, for attending this call. I know all of you must be extremely busy with so many earnings calls. So with this, thanking you once again. I bring this meeting to an end.

Thank you. On behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.