Gufic Biosciences Limited (509079) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Q4 FY '22 Earnings Conference Call of Gufic Biosciences Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Ami Shah from Gufic Biosciences Limited. Thank you, and over to you, Madam.

Thank you, Diksha. Good evening, everyone. I'm Ami Shah, Company Secretary of Gufic Biosciences Limited, and I welcome you all to Q4 2021 -- 2022 earnings conference call. I have with me Mr. Pranav J. Choksi, Chief Executive Officer and Whole-time Director; Mr. Devkinandan Roonghta, Chief Financial Officer; and Mr. Avik Das from Investor Relations team to give the highlights of the business performance of the company and to clarify all the queries of the investors during the call. After the opening remarks from the senior management, operator will open the bridge for Q&A session, but before we proceed with the call, please note some of the statements made in today's discussion may be forward-looking and are based on management's current expectations, and this may be viewed in conjunction with risks and uncertainties involved in our business. The company assumes no responsibility to publish or update or amend, modify, revise any forward-looking statements based on any subsequent development, new information on future or except as required by the applicable laws in force. This call is being recorded, and the play by shall be made available on our website shortly after the call. The transcript of this call will be submitted to the stock exchanges and be made available on our website. I'll now hand over the call to Mr. Avik for his opening remarks. Thank you, all. Over to you, Avik.

Thank you so much, Ami, and a very good evening, and thank you all for attending our call. We deeply appreciate your participation. I'll provide a brief overview of the key developments in the past quarter and the year. We ended the year as the fifth fastest-growing company among the top 100 pharma companies in India. We have seen a strong and sustainable growth across all business verticals, whether it was our domestic branded business, the CMO business, our export business or the API business. And something good that happened is the growth was primarily driven by our non-COVID portfolio. So to begin with, I'll give you all an overview of the developments in the Critical Care division, where we've launched Zarbot, which is the first botulinum toxin in India targeting cerebral palsy, migraine and overactive bladder. So we've taken botulinum toxin range of products beyond the aesthetic dermatology into an absolute blue ocean where we have the first mover advantage with this product. Overall, there has been a shift in our strategy where earlier we were mainly targeting secondary and tertiary care hospital. Now we also started penetrating into primary care hospitals and nursing homes, which is a fragmented but a large and a fast-growing market. Clinical trial for D29 has progressed very well. This is a novel once-a-week anti-infective to be launched for the first time in India. And now coming to Ferticare division, the sales in this division has crossed our pre-COVID levels. We've also improved the technology for one of our flagship brands, which is Puregraf, which will help us increase traction and gain market share within this category. And we're also exploring 2 new indications for an existing peptide molecule, mainly targeting endometriosis and recurrent implantation failure. The results of studies and initial trials are very, very promising. Both these indications have a large unaddressed market in India. Within our Healthcare and Spark division, we have launched a new multivitamin formulation to augment our anyway well-spread and well-diversified product portfolio. And now coming to Aesthaderm division. So post COVID-19, the cosmetic procedures have increased twofold and we've seen similar traction in the Aesthaderm portfolio as well. This has been backed by improvement in doctor coverage and very good acceptability by doctors and the fraternity in large. And we are starting a Center of Excellence to impart training as well as to import novel innovative practices, equipment and products in this field -- in the field of hair and body aesthetics. This is to ensure there is adoption, expansion and penetration of our botulinum range of products at an affordable price point for the Indian market. Now coming to Stellar division, the division was launched last year, and we are seeing good traction. We've launched n new product, Sallaki [ Max ]. It's a nutraceutical targeting arthritic pain. And a quick update on our international business. In the past year, we've commenced exports to regulated markets for molecules such as vancomycin, clarithromycin, teicoplanin and tigecycline. In FY 2022, we received 5 new product approvals from regulated markets and 8 new product approvals from the semi-regulated market, and we've entered 2 new regulated markets of Brazil and Canada. In Q3 and Q4, we have very aggressively invested in a new biological technology platform. Our CEO will throw some light on it later in the call. And now some very strategic developments that happened in Q4 was we've received permission to manufacture, sell and distribute sodium sulfate API and the finished formulation which is isoconazole for injection. This is an injection targeting patients above 18 years of age for treatment for invasive aspergillosis and invasive mucormycosis. Beyond this, we've received the DCGI approval for Thymosin Alpha-1. Immunocin Alpha was a homegrown brand in this molecule, which is used as an add-on therapy for treatment of moderate to severe COVID-19 patients who require ventilator support. Immunocin Alpha has significantly reduced the risk of death in Phase III clinical trials in adult patients with moderate to severe COVID-19. We've also applied to DCGI for sepsis indication, which in itself is a large market. Another development in the past quarter was that we forayed into cancer immunology by undertaking research collaboration with Selvax, which is a research company based in Australia. And as a part of this initiative, we will collaborate on development activities in return for exclusive commercial rights for the immunotherapy in India, along with an equal share of revenues from Europe. And Selvax' goal is to develop a very safe, effective immunological-based treatment for a range of hard-to-treat solid tumors. We foresee tremendous synergy in this collaboration. I'll also give a quick update on the ongoing CapEx. So at Indore, we are very happy to announce that our civil construction and site development work is in progress as per schedule. And we anticipate that it will be completed within 4 months from now, the civil construction. All equipment have been selected and orders have been placed. The dispatch schedule for all the equipment is as per plan. The R&D center at the Indore city has become functional and we've put together a team and product development work has also commenced. For the Indore facility, we expect commercialization by first quarter of next financial year. Now about the Penem block at Navsari. So our decision to move the Penem block to Navsari to reduce the time to market has turned out favorably for us. So we completed the civil work there. The equipments have been received and installations nearly completed, and we expect commercialization in Q2 of the current financial year itself. Now with this, I'll hand over the call to our CFO, Mr. Roonghta, to throw some light on the financials for the quarter and the year. Thank you so much.

Thank you, Avik. Good evening to everybody. I'm Mr. Devki Roonghta, the CFO of the company. I will just highlight the financial performance of the company for the financial year '22 versus '21, and Q4 of '22 versus Q4 of '21. First, I am going to highlight the financial year '22 versus '21. The total revenue of the company has increased from INR 488 crores to INR 779 crores. If we compare both the financial years, it will not be comparable because in the financial year '21, there is -- because of COVID-19, the whole country was under lockdown from the second week of March till mid of May 2020. And in the financial year '22 because of the second wave of the COVID-19, there was a heavy demand of COVID-related drugs. Out of INR 779 crores turnover, this year, around INR 170 crores turnover is related to COVID. If I remove the COVID drugs, current year's normal turnover should be around INR 610 crores and that is a natural growth of around 25%. But actually if you see, the growth is looking like INR 487 crores to INR 779 crores, it looks like a 60% growth, but normal growth is around 25%. 35% growth is because of the COVID-related drugs. EBITDA has been jumped from INR 87 crores to INR 148.8 crores, that has been a 70% jump because main contribution is also coming from COVID-related drugs. EBITDA margin has also been jumped from 18% to 19.1%. Profit before tax has been jumped from INR 57.7 crores to INR 126.8 crores. PAT margin has also been improved from 11.8% to 16.3%. Income tax liability has increased from INR 13.5 crores to INR 31 crores. Profit after tax has increased from INR 42.2 crores to INR 95.8 crores, that is increase of 117%. PAT margin has also improved from 9.1% to 12.3%. The cash generation from the operation before tax has -- last year, it was INR 98.50 crores. This year, it was INR 137.50 crores. If you see the financial highlights for Q4 of current financial year versus Q4 of financial year '21, the turnover has been increased from INR 131.9 crores to INR 162.2 crores. There is a jump of 23%. Here, there was no COVID-related drugs in the Q4 of '21 and as well as the Q4 '22. It is a normal jump. EBITDA margin has been increased from INR 24.4 crores to INR 31.6 crores, there is a jump of 29%. EBITDA margin has been improved from 18.5% to 19.5%. Profit before tax has been improved from INR 17 crores to INR 26.2 crores, there is an increase of 54%. PAT margin has also increased from 12.9% to 16.1%. Profit after tax has been increased from [ INR 12.9 crores to INR 20.3 crores ]. PAT is increased from 9.8% to 12.5%. If you see the balance sheet, there has been one abnormal, which is noncurrent asset has been increased from INR 6.5 crores to INR 35.3 crores. This is basically a capital advantage that's been given for our Indore project, around INR 30 crores. And in cash flow, also, we have incurred around INR 88 crores on the CapEx program for the Indore as well as Navsari factory. In Indore, we incurred CapEx expenses of around INR 54 crores. Navsari, we have incurred CapEx expenses of INR 20 crores and around INR 4 crores, we have incurred on account of implementing of SAP as well as purchasing of -- SAP, in hardware as well as software development. Thank you.

Diksha, we can open the floor for Q&A session.

[Operator Instructions] We take the first question from the line of Rajat from ithought.

Sir, just wanted to check the market opportunity that we see for some of the products that we got an approval recently that we talked about, as well as D29 which is in the pipeline. And what is the current line of treatment for the diseases that they are going to cure? So what's the competition, basically?

Rajat, can you hear me clearly?

Yes.

If I understood -- this is Pranav Choksi, the CEO of the company. And just to understand your question properly, you have asked me that the current approvals which we have got in the last quarter, what is their market size estimate? And you also have asked me what is the competition against them? Is that the right understanding?

Absolutely. As well as D29, which is in the pipeline.

Can you repeat that again, please?

If you can also talk about D29, which is in the pipeline.

Okay, D29. Okay. Okay. So I'll first answer your question. So isoconazole was, of course, if you follow the last few quarters, we have been talking about the approval which we finally got in the first quarter -- I'm sorry, in the last quarter of 2022. Right now, specifically, as Avik said, we have got the permission of API as well as the injection. Right now, there are 2 potentials of the product. One is, of course, the domestic market and one is the international market. The domestic market has its own market size of USD 6 million, specifically related to the molecule isoconazole where there is only one innovator that is, of course, Pfizer, which is there in the market. We foresee that this product is also going to be working against other molecules having a similar therapeutic profile like posaconazole, amphotericin B's molecules and also used in combination with echinocandins. So if I combine all that market up, of course, it goes beyond INR 230 crores. But like I said, when we talk about -- we have got the permission right now only of injection. We are expecting the oral permission also to be received in the next, I think, maybe the third quarter or fourth quarter and it'll be a good basket for us to take it forward. In terms of the international market, this also has a bigger traction because apart from the mucormycosis and the black fungus, which was a big issue post COVID, itself is a market which is intrinsic, which will help us to unlock the value. So being the first, I would say, generic in India gives us the good opportunity to take a good market share, not only of the direct $6 million market, but also the other market where the tariff was an issue and we could not take it up. Internationally, we have little bit bigger ambitions because this molecule is the drug of choice because it has oral option along with the injectable one, which is normally for hospital therapy. Once the patient is discharged, there is a good option where the actual oral tablets goes for a longer period of time. And that is where we can see a bigger traction in terms of the sales. Answering your question about Thymosin Alpha, which we got approval in COVID. We don't foresee much traction in sales in India for COVID, but it clearly shows that -- the beauty of the molecule's approval is that in moderate to severe there are very limited, almost no products approved in India, whereas this is the only product where we have seen the death ratio and the death percentage really being amplified where the drug was really a drug of choice, and we have seen a lot of lives have been saved. The more interesting part would be sepsis management because when you see the therapeutic profile of a patient going COVID, I'm talking about a moderate to severe patient. And then you see a severe patient who has -- sometimes also goes for sepsis. This is, again, a combination of the immunity of the patient along with environmental factors. And we foresee that sepsis is a big market, via which the -- we have, of course, applied to DCGI once again, we want to do a separate clinical trial on sepsis patient, which we have applied in the last quarter. And that data, once it gets out and of course, once we get the study out and once we get all that, we see a higher traction because there are almost 1 million patients suffering from sepsis in India itself. And if the protocol is validated and it's shown as what we propose, then we can take the market -- we can take the product internationally. And sepsis is a huge market. If you want to know -- I mean I don't have international numbers in terms of patients or international numbers in terms of, I would say, U.S. dollars as of now, but I'll be more than happy to see what we can get from our medical and regulated team and pass it on to you. D29, earlier like I said, it's sort of an upgrade to the existing therapy of vancomycin, linezolid and teicoplanin. So again, we would be not -- there is no innovator in India for D29. We'll be the first company to launch D29 in India. And at least what I foresee since we are backward integrated in terms of API, we will be having limited or no competition at least for the first year in India. Going forward, we have aspirations from our Indore factory to take this B29 to the European and the U.S. market where this product is already approved. The innovator is already there. And the start of the sales might be slow in India, but the international market will be much bigger. So we foresee that with the ease of administration, where it's once in one week and maximum maybe the second dose in 5 days, if needed. A lot of outpatients, which normally get treated in U.S. for certain indications or in Europe, this is a drug of choice as compared to the conventional ones. So let's hope so. So that is what we have expectations of these 3 candidates. There are other products in the pipeline, but if I go on it'll be quite long. I restrict my talk here and then if anything, we'll get back to the pipeline later on.

Sure. Also, if you can talk about the market opportunity, again, for the alternate uses of botulinum toxin that we have recently -- we have launched [indiscernible] will be selling there.

Yes. So as you must be following the company, we launched the Stunnox brand in February 2021, which was mostly related to the facial aesthetics, and we were very keen, I think, to launch the Zarbot brand, which is our medical -- especially, I would say, related to the medical uses and especially for neurological uses, apart from other uses in pain also. This indication, there are more than, I think, 600 indications where there have been papers published. Of course, there have been a few indications where the actual approval has been done. So I'll restrict my call in terms of approved indications only. But what we foresee that a lot of doctors in India have -- the neurological doctors are much more advanced, and I mean, they already have been trained, they are aware about it. But there is still a good old lacuna in terms of the ratio of the doctors to actually the patients. So with the Center of Excellence, what Avik spoke about, we are trying to create a training center where around, I think -- all those 30-odd approved indications, which we have selected, it might be hyperhidrosis, it might be migraine, it might be cerebral palsy, it might be dystonia and so on, whatever. We are trying to actually impart training to a set of doctors who have -- who are interested in increasing their, I would say, foray into this particular indication. Plus, we have our own in-house medical team. We have taken a very senior, I would say, medical professional from the industry as well, having MBBS and who has worked in, of course, in MNCs in the same product lineup, who is going to run this Center of Excellence, and there will be at least batches of 20 to 30 doctors every month trained itself in Mumbai. And if the model is successful by Q2 or Q3, we are planning to open similar centers in Delhi, in Bangalore as well as Hyderabad, then followed by Ahmedabad. And let's see how we do it. So because like I said in all my earlier calls, training, imparting -- I would say, not educating the doctors, doctors are much more aware and much more educated, but getting the right training in terms of the application and the dosage is something which we are very picky on. And we want to pass it on to the right medical practitioners and the professionals who can help us to expand the market further.

And how big do you think these products can become over the next, let say, 3, 4 years?

Very, very difficult question. I'll just tell you, the entire international market is USD 8 billion, whatever I see data online. The U.S. market itself is USD 5 billion. The population of U.S. who can actually afford it, [ and forget ] facial aesthetic is not covered by insurance, but the medical is covered by insurance. But I mean this is assumption what we have as per market data that 2. -- I mean, am I using the right terminology. I'm using Indian numbers so please, excuse me, because 28 crore out of the 40 crore population in U.S. are the population which can afford botulinum toxin. In India, we have 130 crore population. If I assume only 28 crore can afford it, the market is endless. So I'm not saying that the market can be $1 billion or $5 billion or anything, I'm not saying all that. But if we see the penetration and we see the amount of users, even if we sell 1/8 of the vials which are sold in U.S. or 1/10 of the vials which are sold in U.S. in the same population in India, I'm saying the affording population in India, that is 28 crore -- to 28 crore. If we look at a minimum, INR 1,200 crores to INR 1,500 crores market just for this. But of course, it's not so easy as it's said, it has to be a good of training, good amount of insert, getting the right people on it, creating an awareness that a lot of patients in India don't know that there are -- there is an option available with the botulinum toxin, of course, along with other drugs, which can be used in combination to serve the people in certain medical conditions, which right now just people are living in or are suffering silently. So let's hope. This is what we aim to target to do.

[Operator Instructions] We take the next question from the line of Chetan Phalke from Alpha Invesco.

Please just throw some light on R&D expenditure going forward. I mean, over the next 2, 3 years, what is the budgeting that we foresee, let's say, in percentage of -- in terms of percentage of sales or in absolute amount? And what was our R&D spend for FY '22?

I think the R&D spend answer will be relayed by Roonghta sir, because mostly, we normally do as a proportion of the cash flow rather than the sales or something. So Roonghta sir, can you take this question?

Generally, depending upon the financial condition of the company, we always plan minimum 8% to 12% of R&D expenses. In case if our cash flow is tight then minimum 8% we are spending on R&D. If cash flow is permitting us, we can go up to 12% or sometimes we have crossed the 12% also. But our target is at least to maintain 8% minimum R&D expenses so that the development will not be stopped and we will always be putting money for new product development, new segment development. And another, we are also -- a lot of spending on the new trials also. So you can say that whatever the turnover is there, average, we can say that over 3, 4 years, the average expenditure will be around 10% of the turnover.

And what was the number for FY '22?

FY '22, if you can see the sales target of this year was INR 788 crores, I can say, out of INR 788 crores or INR 790 crores, INR 170 crores was related to COVID-related drugs. The actual sales is around INR 610 crores. We say there will be a minimum 15% to 20% growth. So you can say around INR 750 crores -- minimum we are expecting INR 750 crores and if something goes good, it can touch to INR 800 crores.

Sir, I think he's asking about the R&D spend for the current year.

For the current year, yes.

For the current year, financial '21-'22?

Yes.

'21-'22, we have spent around INR 65 crores on our R&D expenses.

Got it. Got it. And Pranav, can you just throw some light on...

Sorry to interrupt. This is the operator. The participants are requested to restrict their questions to one per participant. You may get back in the queue, sir.

Yes. This is just a follow-up to my R&D question. But I'll get back to the queue.

We take the next question from the line of Mr. Aman from Astute Investment Management.

Yes. My first, a little clarification on the numbers which you have shown in the presentation. Because the numbers are not mentioned actually, if we look at the segmental breakup in terms of domestic formulations and API and all those things. So if you can just talk about the current domestic and export mix for FY '22. And then what was the growth in our CMO segment in our international CMO? If you can talk about those things. And if you can break the CMO into domestic and international CMO.

Sure, Aman. So I think answering your first question, as we always -- and as I've said in the last year, also in the quarters, normally around 50% to 55% of our revenue comes from the domestic business, that is our domestic branded formulations. Around export, which was at one time of 15%, has gradually moved to 22% to 25%. Let's say, on an average, it will be still around 20%, 22%. CMO business was affected somehow in the first, I would say, 6 months of our thing. When I mean CMO business, the non-COVID portfolio CMO business was definitely affected in the first 6 months but a lot of our capacities were blocked for our own domestic Thymosin Alpha as well as remdesivir for our clients as well as liposomal amphotericin B for mucormycosis. So I would not use this year's capacity to give you numbers, which are our thing. But if I compare maybe in '19, '20 numbers with now numbers, we have seen CMO market also grow by around 20% to 22% when I take like-to-like comparison, ignoring the COVID portfolio out of it. So just to give you a little bit more light on the CMO, we have expanded our capacity pre-COVID in March 2020 with some lyophilization. And again, in March 2022, again, we had some small expansion coming up for not only a replacement but an addition of capacity of our lyophilization. So this all and we'll play a role in the growth of the CMO business also going forward, which is an important part of us. To bifurcate into a domestic and I would say, international business, the domestic business, because of some products which were life-saving and related to COVID, we saw a good traction, a jump of COVID-related CMO in the first half. In the non-COVID CMO, like I said, we could not supply those products, so we have seen some degrowth in that, which, of course, we hope to compensate. We had to actually say no to certain clients, which we are now, in the last 3 months, trying to get back because they were part of the COVID business who has evolved in the last decade. I'm talking about, especially about infertility, I'm talking about certain cardiac products. I'm talking about parenteral products, and I'm talking about some other products which we have at legacy going forward and also new pipeline being added here. For example, when the isoconazole product is added, apart from Gufic, we are helping 3 of our clients launch it also in the first month itself and then also offer it to others in the time to come. There are other new drug delivery systems which are coming up, which also we'll be offering to other clients. So the advantage of the CMO always will become an important pillar of our company going forward, and there it will be a larger traction. International business, the CMO business suffered again because of capacity occupied, but we have seen a good jump in the last 3 months from Jan to March. And we will see a further good jump in the times to comes because like I think we announced also we got a U.K. approval, we've got other approval. So apart from our own sale there, because of the capacity being free now, the international CMO also should see a positive turn in the coming year.

We take the next question from the line of Maitri Parikh from Pi Square Investments.

In the opening remarks, you mentioned about the breakup of CapEx, which I missed. So can you please repeat the same?

I'm sorry, ma'am, I didn't get your question very well. Can you repeat the question, please?

Yes. So I was asking that in the opening remarks you mentioned about the CapEx breakup, right? So I missed the same. If you could just please repeat?

I think maybe the moderator, can you just convey the question because I think because of the voice, I'm not able to hear the question. I just heard about the opening remark and about something there.

Even I could not hear the question clearly as the voice is not clearly audible.

Maitri, can you just see if your mic is there? Are you using a mic or something?

Is this audible now?

Perfect.

I was asking about the CapEx breakup which you mentioned in the opening remarks. I missed it. So if you could please repeat?

Yes, sure. I'll give it to Roonghta sir. I think he'll be in a better position to answer.

Could you please just repeat your question once again?

Ami, they want the CapEx breakup what Roonghta sir gave in the opening remark about Indore and Navsari and about the total year.

We are having a total CapEx of around INR 220 crores for Indore plant. Out of INR 220 crores, INR 60 crores have been already spent in the month of -- up to March 2022 and remaining balance, INR 160 crores, we are expecting to be incurred in the next financial year. Against which we are expecting certain internal accrual and for the remaining amount, we are going to take a certain bank loan on a long-term basis. Around INR 25 crores we have spent in Navsari plant for our Penem as well as dual chamber and certain increase in the lyophilization capacity. Around INR 3 crores -- around INR 3 crores to INR 4 crores we have spent on the CapEx for our SAP implementation plus hardware for our IT department. That is the basically breakup of the -- out of INR 220 crores, I can say, Indore plant, INR 20 crores we are spending for R&D facilities. And INR 200 crores for lyophilization facilities, including civil construction and land cost.

We take the next question from the line of Ayush Agarwal from Mittal Analytics.

Congratulations on a good set of numbers. My first question is on your R&D spend, which our CFO sir mentioned that was around INR 55 crores. So I mean, in the annual reports -- past annual reports, we don't see that the number is as high. So if you can help us understand where do we and how do we spend this INR 65 crores, and what was that numbers in the year earlier?

Yes. Ayush, so first of all, yes, this year, definitely, we have spent a little bit more because also apart from a positive cash flow coming in, we had certain amount earmarked. Since we got that a little bit excess, I would say, inflow coming in, we had kept some projects on hold, which we were very keen to execute. I think when Avik spoke about in his opening remarks, there are certain biological, I would say, pipeline investments, which we have done specifically in the last 2 quarters, which is related to the new biological pipeline, which we are hoping to you get into. Which is, again, a very novel IP protected as well as patented platform, which can be a platform technology for many of our future products to come. So since we saw a good traction happening, and if you see the numbers of the company in the last 3 to 4 years also, we have -- whenever we get an opportunity to spend in R&D in terms of either a generic pipeline expansion or a new product introduction in India or even for that matter -- when I talk about R&D, sometimes we also talk about certain products which we specifically developed for certain international markets in terms of -- for the marketing authorization and going forward. This year, the highlight has been, I would say, the biological pipeline expenditure, which has been on the tune of around almost INR 12 crores to INR 14 crores out of the INR 65 crores. And that, again, will continue in the next 2 years because we foresee that, that will be another additional, I would say, weapon in our arsenal in terms of certain -- prevention of certain diseases in the future. So that is something very interesting. If you see botulinum toxin also was something which was done around 3 to 4 years ago, which eventually we started getting the traction in year 2021 and now eventually in 2022. So the percentage like Mr. Roonghta said has been around 8% to 10%. This year, we have gone to INR 65 crores. Again, keeping in mind what Roonghta sir said, INR 65 crores is the pure R&D spend, additional amount was also spent in the dossier creation, the regulatory and the clinical trial cost, which is apart from that, which also will make the amount go much higher.

I also want to understand...

Sorry to interrupt. This is the operator, you are requested to get back in the queue for the follow-up question.

I just ask one question, ma'am. If I can ask this follow-up on the R&D question.

Yes. Please go ahead.

Thank you. So what constitutes this INR 65 crores in terms of salary or equipment or others, can you just give a breakup of that? And that will be really helpful.

We -- I can -- I don't have the breakup. But I'll just tell you what it comprises of. Of course, is comprised of the salaries, it comprises of certain specific tests, it comprises of certain maybe unique equipment required to maybe do certain, I would say, reactions or certain biological amplification or certain I would say, processes. And of course, it takes care also some part of intellectual property, which we pay to our in-licensed companies where we get certain basic technology from. So getting a cell line or maybe getting -- so when we do a biological process, there are around 4 sort of steps. We sometimes are good in 2 or 3 steps, and we outsource the other step from a company who has an expertise or maybe has a core competency in that particular subject, that also takes care of certain transfer fees or the process transfer fees also.

We take the next question from the line of Alisha from Envision Capital.

Just wanted to understand that while we know in Q1, there was a benefit of the COVID-related drugs, but last 3 quarters, the run rate has been consistently declining, but the gross margins have been expanding. So one is what is sustainable gross margin and two is the Q-on-Q decline in sales that we're witnessing since the last 2, 3 quarters?

So I think I'll answer your sales decline question, and I will request Roonghta sir to comment on the gross margin question. So answering your question first, how has the sale decline? As you rightly said, the first quarter was more about the COVID drugs. The second quarter was a combination of COVID and black fungus, mucormycosis drug. And the third quarter, of course, we had returns which were in terms of inventory buildup, which was for the first 2 quarters. The fourth quarter, if you see historically also in terms of our or maybe the pharma industry, post 15th of March, the purchase at the stockist level or at the trade level just goes off. Plus, of course, apart from that, there is a very specific thing also. If you see a lot of inventory buildup has also happened in the market for certain sectors. Especially, I would like to tell you critical care. And maybe to some extent, I would say, these institution businesses, which, anyway, it's not a very big component of our company. But critical care, we have seen a huge inventory pile up in the market. Especially, which took time in the third and fourth quarter to go out. It's still simmering off, and that's what we had mentioned in our opening remarks that it will still take time until Q2 for the critical care market, I would say, inventory to go down. And hence, I think we -- if you see the last 2 quarters also, the main division which has been pumping in the growth is, of course, exports, it's also infertility. The CMO market also in the last quarter -- last 2 quarters went down again because of the inventory buildup because a lot of products were preponed. But if you -- since the first quarter was INR 250 crores, we all feel INR 160 crores and all that is the number. But as Roonghta sir clearly explained that from INR 487 crores -- our revenue without COVID would still be around INR 610 crores or INR 620 crores and that is where we feel that run rate should be in the right way. Of course, we feel other things will start kicking in along with Penem from the next -- from the second quarter, and we hope so we can achieve our target as what we have thought about. In terms of the gross margins, I'll hand it over to Roonghta sir. I think he'll be much better to answer that question.

The financial year 2020 -- '21, the gross margin was around 48.5%. The current year, the gross margin has been around 46.5%. So there was a -- reduction is a 2% in the gross margin. That is basically during the COVID period certain drugs have been returned in the third -- Q3 and Q2 of the current financial year and which do not have any future market. So we have to write off that drugs inventory, which was [indiscernible] -- drugs were related to COVID in the books of account. Therefore, there has been reduction in the gross margin, around 1.5%, 1.6%. But if you see the EBITDA of the company has been improved from 18% to 19.5% and the profit before tax has been also improved from 11.8% to 16.3%. And PAT margin has also been improved from 9.1% to 12.3%. Overall, the performance has been very good compared to the financial year 2021 versus '22. The gross margin, I already said because of the COVID-related drugs, which was not able to have a market after September 2021, that inventory has been write down in the books of account, therefore the gross margin has been reduced. But overall, the performance of the company has been improved.

But sir, in Q4, the gross margin was almost 55%, 56%.

Yes, Madam. That's the reason because the writing off has been happened in Q2, Q3. What you see now is more of a, I would say, the actual margin. Because, as I said, the domestic business is picking up, infertility products are picking up. Critical care is somewhere where we see the margins little bit affected. Plus, of course, the exports has come back to normal. And exports and our own domestic sale is somewhere where the margin improvement happened because, again, it's all about amortization, and we have improved. So there has been an impact of Chinese impact on the RM and PM and all that also. But somewhere because of our own, I would say, domestic base and because of the exports and also because of the rupee thing. To some extent in the last quarter, more also you will see in the first quarter this year, but there has been overall improvement in the margins going up.

We take the next question from the line of Mr. Bhavya Sonawala from Prime Asset Source.

I just have one question. So there's a lot of competition in the Criti Care segment, and we have managed to [indiscernible] that area within us. So just wanted to understand what is letting us compete and what can you attribute this growth to?

If you see what we have done, we have seen the entire Indian market is INR 1,81,000 crores. That is as per [ IGIMS ]. Of course, I'm quoting their number. This plus or minus depending on what is the last month's average. If you -- we have selected around -- a market of around INR 36,000 crores to INR 38,000 crores only in critical care. Out of that INR 36,000 crores to INR 38,000 crores, we have right now products of only around INR 14,000 crores to INR 15,000 crores. We foresee in the next 2 to 3 years, this natural erosion of margin always happens. And that's why the pipeline and the new product launch is very important to us. So we foresee that with the help of economies of scale, the erosion wave will be ridden much better by the company. Secondly, since we'll have a pipeline coming in, we will always see that margin getting compensated with the new launches coming up. Plus, in the next 3 months, when we announced certain drug delivery options also, we will see some improvement happening by which we can see that we always offer the trade and the critical care trade specifically, something unique and something always big. And the moment that unique thing becomes a generic or unique thing where a combination comes in, we have some other offering which comes in -- reestablishes our, I would say, presence in front of them. So gradually, what we feel from this INR 12,000 crores to INR 14,000 crores, we want to start a product pipeline all the way to INR 36,000 crores, where the Penem will help, of course, and of course, certain other, I would say, unique neurological, then also anesthetic and other offerings will help. So basically, we're looking at an ICU setup and what all products are required. And then eventually use our presence in the form of trade and penetration in terms of the current logistic channel what we have to ensure that the basket keeps on expanding either via our further generics or either via innovative products or either via new delivery systems which ensure that we keep this going. Also because of economies of scales of India and exports, our efficiency in purchase is our strength. So when we have to add really even -- we are an EU-approved facility. And sometimes we compete with companies in India who are basically highly even just about WHO GMP, just basically have GMP. But still with the same quality as international markets, we still be able to compete with them at the prices because of this efficiency and the economies of scale. And that helps us to improve. I mean because of sourcing efficiency, we still are a force to reckon with. So that way, I feel that, yes, we can still survive and expand on the critical place. And we foresee and we have seen a lot of people grow tired of this critical care also because they don't have the pipeline or they don't have nothing new to offer. And then they just get decimated in this price war and the erosion of margins. And that is where we -- our pipeline and our R&D team and our other sourcing team and [ regulatory ] keeps us moving on and on.

We take the next question from the line of Swechha Jain from ANS Wealth.

My question is what I understand in the previous participant's answer, I think you had mentioned that we can expect a 25% growth in the top line and the current gross margins are the normal margins. I just want to understand, is this correct, especially if we are expecting the Indore and Penem block to come up this year and by Q2 of next year? So what kind of revenue are we expecting from these 2 blocks to add to our normal growth of 25%? And is this 56% gross margin sustainable? And also, if you could help us understand the current utilization of our plants, currently what we are at? And for the CMO, do we have any order book for the CMO business?

Yes. So answering your first question, no, we did not say that we will be continuing at 25%. 25% is our organic growth last year, which Roonghta sir clarified that from INR 487 crores if we consider our organic growth without COVID-related products and it was 25%. When we are asked, all of us we always say that we are -- I mean our estimate is 15% to 20% year-over-year. That is what we foresee. In this year, I don't see Indore contributing to the top line as of now because as Avik has mentioned in his opening remarks that you look at March 2023 is when the plant will be ready and April to June 2023 is when the revenue will be captured for Indore. This year, yes, I agree that Penem will be something which will be taking it up as a part of our, I would say, additional in terms of product offering. And that is where taking care of all this still we feel around 15% to 20% bare minimum is something which we target over our non-COVID sales. So assuming INR 610 crores and INR 620 crores as a pace, 15% to 20% is what we foresee for the next year. Gross margins -- sorry?

No, sorry, sorry, go ahead.

Okay. So gross margin is something, as we improve and launch new products and improve the product lineup and again, we improve in some terms of our efficiency sometimes going forward, we will see the gross margins at least improve a percentage over -- and when I say a percentage, average percent of the year because in a year, there might be price rises. Sometimes the RM price shoots up and it doesn't give us enough time for us to implement that price in the market. We have to take permission of MPP and XYZ and all of that. So when I consider the average percentage year-over-year, we have a target of improvement of at least 1% gross margin year-over-year. Again, because of the pipeline, because of the new regulatory systems, because of efficiency and so on and so forth. And so that is what -- did I answer both -- that was the question, right? Anything else to be answered?

Yes. So basically...

Thank you. We request you to kindly get back in the queue for a follow-up question.

I'm just confirming to sir, what he said. He's just asking a question. So basically, you're saying that the 56% on the quarterly basis that we have the gross margin, that is not sustainable, right?

Madam, it's very difficult for me to say that. Again, I'm saying because the product mix is so dynamic right now in terms of the sourcing from China and even the other utility and the oil prices and whatever, I think it's all adding up to the RM and PM also. So I will only hope for improvement. Because if I see there are so many SKUs of us and so many things, it's very difficult for me to give a percentage there. But what I can -- I mean, what we are working on as a company is a percentage improvement or gross margins year-over-year. Again, tomorrow, you don't tell me, you made it 60, why did you make it 60? I'm sorry. So we will try but I cannot promise because everything is very dynamic right now.

Sir, you didn't answer my question on the plant utilization and the order book for...

Yes, it's around 70% in lyophilization right now, which should pick up. So it's 70% there. Otherwise -- I mean, overall, I think we had around 70%.

Okay. Okay. And sir, any order book for the CMO?

We do, but we cannot share that number with you because evolving.

We take the next question from the line of Arpit Agarwal from Electrum Capital.

A couple of things. One is, obviously, you are doing a lot of products on R&D and you are working on different product pipeline. I just want to understand a little more high-level question that so if you see over 3 years, what are the -- what will be the key growth driver for the company? Which products do you think or -- which will clearly drive the growth and take the company the next level? So that is something which is -- because you have so many divisions, so many new product pipelines. So which are the -- as a CEO, what do you think will be the key products, which will scale up? And second is on the Stunnox, it's been like about more than 1.5 years since you've launched. So if you can give us some sense on the numbers? Are we seeing some traction? Because we also understand that the market size is too large, but obviously, in India, it is very small and you being technically a domestic leader, one of the first companies to launch it, you probably have to create the market. So what are the efforts going on that side?

Yes. So answering your first question. So like I mentioned in the -- we have our pure legacy pharma business, when I mean legacy, something which we have created in the last 10 years, and that is something as a main strong point. There are business is, of course, domestic, export, CMO and of course, the API. That business in terms of the new product pipeline for anti-infectives, infertility, cardiac, like I mentioned, we are expanding it to now anesthetic, we're expanding it to neuropsychiatry -- I would not say neuropsychiatry, I would say only neurological for that matter. And then parenteral nutrition is something we are going forward, where we feel the existing growth should come in terms of how we can also take it up to international market also via Indore in addition to Navsari. Biological is something which was very close to my heart, specifically because I am [indiscernible] B Pharma and MSc in Biotech we started the journey with botulinum toxin. Me, along with Dr. Bal Ram Singh, who's, of course, our strong driver and the strong, I would say, the main fulcrum of our Biologicals division going forward, have always had certain ideas, which we wanted to work on, but not at the cost of -- at the cost of the main company. Because the main company has its own trajectory growth, and we are very confident about that. And sometimes biologicals can become a gamble at the end of the day. But we always have felt that getting into certain biologicals where the proof of concept comes to a particular stage. So there might be some projects which we might have been working for the last 5 years, 6 years. Or something we might have just worked on the last 1.5 years because of the COVID. And then we have seen some positive results coming in and those are the proof of concept, approved projects, which we are now taking it forward in a much more, I would say, organized way and amplified way in last year and of course, in these 2 years ago. And we feel, again, when I say botulinum toxin becomes a part of it because there we have now new drug delivery systems coming up botulinum toxin -- a new variant coming of botulinum toxin. And along with that, we are coming up with some oral platform technology for certain products coming forward. So as and when, again, I'm allowed to give more and more information, I'll be more than happy and excited to share that with you. But as of now, we feel the existing generic pharma along with new development in pipeline and drug delivery system will be our focused growth. Indore, of course, will play a big role because of the market access of U.S., what we are hoping. Again, starting as a CMO there and eventually seeing if anything of [indiscernible]. We still feel we are very small, and we don't want to take that risk of having our own ANDA and all that. But we have a lot of people showing interest in our product lineup and hence, that Indore [indiscernible]. But also at the same time, we feel that the capacity of Navsari will be stretched in this year or maybe maximum by next year and that is why Indore is -- I mean it has to be there. And coming to your second question, Stunnox and Zarbot for that matter, as I mentioned earlier also, we have to invest a lot in the training of people. A lot of people we want to train there, but it's like one teaspoon of this toxin can kill the world. So it's not so easy to handle it. And a lot of people are scared of that. So a lot of effort of us has been going in training and developing people. Right now, what we said, we're just taking some existing market share. But eventually, if you ask me our real vision is to actually create a bigger market, keeping in mind the population and the opportunity base which we have in front of us. So we have grown month-over-month by at least 20%. So -- but the base is so small that it's not something that I'd say is making a big difference in the total revenue of Gufic. But growing month-over-month of any product, in the last 10 years I've been in Gufic, I've not seen that. So -- but maybe we start with 100, maybe we may start going in a much bigger way. So that gives us a lot of confidence and now with Zarbot -- and Stunnox was being promoted by only 28 people, last year. Now we have Zarbot, which is almost promoted by 150 people. And that, we feel that the -- and also the amount of use per patient in Zarbot is much higher than something used for a facial aesthetic for any other matters. So -- in combined way of Stunnox and Zarbot, we feel a higher traction this year. So we expect what we did last year, we should be 4x doing that this year. And hopefully, we should be doing 10x that of last year in next year. That is the level of amplification we are seeing in the botulinum toxin business. So that is how I can answer that.

We take the next question from the line of Darshil Jhaveri from Crown Capital.

Yes. Actually, I just wanted to ask from the long-term vision. When can we expect -- can we expect in FY '25 to reach INR 1,000 crores and how much revenue can we expect from Indore facility in the first or second year? That will be very helpful to know.

Again, I feel -- I hope I reach INR 1,000 crores as soon as possible. I don't know if it will be in '24 or '25 or '26, but keeping our mind on our target, I would say, as we say, 15% to 20% is what we plan of going on. I think year '25, maybe not, but maybe '26 or something looks possible. Again, we don't know how everything will kick in, Indore also. I mean we are living in a very dynamic time right now also with a lot of uncertainties happening of certain things in terms of supply, utilities and all that. Still, we have managed and we have ensured that Indore is on track. We started the construction in December 2021. And I think getting it done by March 2023 will be good, so I hope Indore can help us contributing in a more substantial way in the year '24-'25, which would help us to reach INR 1,000 crores by then, again, it depends on a lot of factors. I'd just like to say that Indore is approximately 1.5x the capacity of Gufic plus around 2 more additional product lines of ampoules in terms of, I would say, suspensions also and along with that eye drops. So the revenue capability of Indore is much higher because of the capacity. And maybe you can just do your internal math. But right now, Gufic, what you see is as per the Navsari facility. But Indore coming up, definitely, it has its own traction of at least 1.5x. Assuming that we get the business and we penetrate the market as soon as possible, but there will be definitely an erosion coming in. And we have already factored that in our approach going forward.

Thank you. Due to time constraints, I would now like to hand the conference over to Mr. Ami Shah from Gufic Biosciences Limited for closing comments.

Thank you, everyone, for joining this call. I hope all your questions are satisfactory answered by us. And in case if there are any further questions that have remained unanswered today, you can reach out to us or to Mr. Deven Dhruva from SGA Investor Relations partner. The contact details are already provided on the last slide of the presentation uploaded on the website of the stock exchange and also on the website of the company. Thank you so much. Please stay safe and take care.

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