Indoco Remedies Limited (INDOCO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Indoco Remedies Q2 FY '21 Earnings Conference Call, hosted by Nirmal Bang Institutional Equities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vishal Manchanda from Nirmal Bang. Thank you, and over to you, sir.

Thanks, Vijay. Good afternoon, everyone, and welcome to the Q2 FY '21 earnings call of Indoco Remedies Limited. We thank the Indoco Remedies' management for giving us an opportunity to host the call. Today, we have with us the senior management of the company represented by Ms. Aditi Panandikar, Managing Director. Mr. Sundeep Bambolkar, Joint Managing Director; Mr. Mandar Borkar, Chief Financial Officer; and Mr. Vilas Nagare, President, Corporate Affairs and M&A. I now hand over the call to the company management.

Good afternoon, all the participants. Hope you and your family members are all safe and healthy. Let me begin first with the business highlights. Net revenues for the quarter grew in double digits by 12.9% at INR 322.5 crores against INR 285.6 crores. And for the first half of the year, revenues grew by 10.6% at INR 589.3 crores as against INR 532.8 crore. EBITDA to net sales for the quarter is at 18.7% at INR 60.2 crores compared to 11.3% at INR 32.1 crore. And for the first half of the year, the EBITDA is 18.5% at INR 109 crores compared to 10.3% at INR 54.9 crore. PAT for the quarter is at 7.8% at INR 25.1 crore compared to 2.6% at INR 7.3 crore. And for the first half of the year, the PAT is 7.2% at INR 42.3 crore compared to 1.8% at INR 9.5 crore. Now onto the domestic formulation business. Indian pharma market for the first time has bounced back after months of COVID-19 crisis and registered a growth of 4.5% in September 2020, giving a positive growth for quarter 2. Indoco ranks 29th in the IPM with market share of 0.62%. The source of this information is [indiscernible]. In terms of prescription generation, Indoco rank is maintained at 23rd in pre-COVID and during COVID period with market share of 0.7%. The source is SMSRC, July/August 2020. Revenue from domestic formulation business de-grew by 6.2% for the quarter at INR 174.7 crores as against INR 186.3 crores. And for the first half, revenue de-grew by 7.4% at INR 322.2 crore against INR 347.9 crore. During the quarter, Fevindo-400 was launched for the treatment of mild-to-moderate COVID-19 cases. Fevindo-400, favipiravir, is an antiviral drug effective against the RNA-based influenza virus. The drug has been approved by DCGI in the treatment of COVID-19. Fevindo-400 reduces pill burden by 50% and it ensures convenient dosing and better patient compliance. The company's brands namely Karvol Plus, ATM, Febrex Plus and Rexidin SRS mouthwash are being used in the prevention of COVID-19. With the launch of Fevindo, the company has moved to the next step from prevention to treatment of COVID-19. Now on the international business front. During the quarter, revenues from International Formulations business grew by 63.7% at INR 121.4 crore as against INR 74.1 crore. And for the first half of the year, revenues grew by 62.5% at INR 216.8 crore as against INR 133.5 crore. On a narrow base, U.S. revenues grew by 295% at INR 43.4 crore as against INR 11 crore. And for first half, revenues grew by 415% at INR 70.3 crores as against INR 13.6 crore. In September 2020, Indoco received the approval of its ANDA for Apixaban 2.5 mg and 5 mg tablets. Apixaban is an anticoagulant, blood thinner, and is used for patients with health problems caused by blood clotting. During the quarter, the company dispatched 4 products to U.S. for launch by partner. The products include 3 injectables, namely Phenylephrine Palonosetron, Zoledronic acid and one solid dosage namely febuxostat tablet. The company received repeat orders and encouraging forecasts for the product shipped in the first quarter, FY '21. Europe revenues grew by 42.7% at INR 56.1 crore as against INR 39.3 crore. And for the first half, revenues grew by 34.9% at INR 104 crores as against INR 77.1 crore. Revenue for South Africa, Australia and New Zealand grew by 38% at INR 1.8 crore as against INR 1.3 crore. And for the first half, revenue de-grew by 13% at INR 3.5 crore as against INR 4.1 crore. Revenues from emerging markets were at INR 20 crore as against INR 22.5 crore for the same quarter last year. And for first half revenues were at INR 39 crore as against INR 38.6 crore. Now on the regulatory update on Goa Plant-I. Periodic compliance updates are being timely submitted to the U.S. FDA agency. An inspection of the site by the U.S. health regulator virtually or outside is anticipated to be scheduled. API and CRO business. Revenues were at INR 22.8 crores as against INR 23.4 crore for this business. For the first half, revenues were at INR 45 crores against INR 47.1 crore. Revenues from CRO and analytical services business were at INR 3.5 crores against INR 1.8 crore. And for the first half, revenues were at INR 5.2 crore as against INR 4.4 crore. That's all about the business highlights for the second quarter. And I now request the participants to put up their questions. Wishing you and your family a very Happy Deepavali in advance. Be safe, be healthy. Thank you all.

[Operator Instructions] The first question is from the line of [ Sajal Kapoor ] from [ Unseen Risk Advisors ].

Congratulations on the reported performance to the management. The operating leverage is clearly visible. I have a couple of questions. So while the operating profit before working capital changes more than doubled on a Y-o-Y basis, I need your help to sort of better understand the working capital adjustment. So I appreciate the jump in the receivables and the inventory. So on the inventory, is it raw material or finished goods inventory, what's the sort of nature of the inventory? And b, why there is such a sharp decrease in payables? So clearly, our suppliers are pushing us hard and the balance of power has kind of shifted in their favor. I mean these could be our solvent suppliers or intermediate suppliers on the chemical industry. So is this trend likely to sort of reverse by the end of this fiscal, because that has a bearing on our net operating cash flows?

Can you just repeat the last part of your question, we didn't understand that?

So ma'am on the net operating -- yes. So we have seen a sharp decrease in the payables. So other question on the balance sheet and the cash flows. So while the working capital -- the operating profit has more than doubled Y-o-Y. But the working capital and -- within working capital, more on the payables -- the sharp decrease in the payables. So clearly, I see the suppliers are pushing us for prepayment or are kind of -- they have some sort of a bargaining power or some sort of power has shifted in their favor. So is this trend likely to reverse by the...

Got it. Yes, okay.

So thanks for your question. So there are some improved trends I would say. First is, we are strengthening our overall situation in terms of ensuring the right availability of our raw material intermediate. So that we are blocking our inventory. So that's why there is an improvement or a reduction in the creditors. So sort of early payment, timely payment, which will ensure the availability in this period. Second, your observation about the inventory is also very right. Basically, we are keeping a cushion of raw material and packing material key required for this season. So -- and as you are aware, the U.S. and Europe, which has almost 60%, 65% growth compared to last year, which requires a good amount of building of the inventory. And of course, in the domestic market, also in this supply chain-related challenges, we are ensuring the right amount of inventory.

Your analysis is that we might have purchased material at a higher level is incorrect. That's what we wanted to clarify.

No ma'am. So I'm not worried about purchasing material at a higher level. I was more concerned about that our suppliers are kind of asking for an early payment sort of things because...

No, no, no. We have -- I will just add on from here. Much of our U.S. Formulation business is entirely backward integrated to the extent we make the API ourselves, but some key starting materials are still coming from China. And because of the situation with China before COVID hit us and thereafter the situation here we have taken -- in this period, we have ensured that we have enough material for our entire year's requirement of U.S. supply. So which is why the inventory levels have gone up.

Sure. So ma'am, last year, fiscal ending March 2020, we had reported a net operating cash flow of INR 120-odd crores. Do we expect to cross that number when we close this fiscal, we have still got 6 months left?

Yes, yes, yes.

Okay. Right. So that's fine. Than this will likely normalize. So that's absolutely fine.

Correct.

Yes. Okay. No, that's fine. So on the -- this Apixaban, that's a big approval for us. So what's the sort of launch time line and expectations for this fiscal and the next fiscal from this big product?

So Apixaban is under patent right now. And we are waiting to see how the patent situation evolves. Based on -- once we have clarity, we will communicate with you. But as of now, we have to wait for patent situation in U.S. to resolve to know when we can launch the product.

So clearly, we are not supplying to the innovators, the existing ...

No, no, no, we are not supplying to the innovators.

Okay. Right. And finally, on the domestic business, ma'am. So Q2 versus Q1 this fiscal, we have seen a strong bounce back. And we know what's happening in the domestic market because of COVID people are not visiting doctors and so on. Question is, can we continue with this momentum, assuming that the Indian pharmaceutical market is going to pick up in Q3. And we -- and so that's one part. And the second part is we have a field force of close to 2,300 MRs. How much is the variable versus fixed pay ratio there? Because clearly, we need to do some further work on the productivity side of -- we need some more improvement on the MR productivity.

Correct. Correct.

So those are the 2 sort of part questions.

Yes. So I'll first talk about the sales. As you correctly said, there has been an 18% growth Q-o-Q as in Q2 over Q1. And at the same time, it is lower than last year because second quarter is typically a very big quarter for us. We have in our top 2 therapies anti-infectives and respiratory. So in addition to the COVID and lockdown-related rules, we were especially impacted because our top 2 big therapies also were impacted heavily in the market. So going forward, definitely, we will see India business come back to much better performance. Coming to your question on fixed versus variable. Typically, at the starting level for a rep, about -- it is -- 1/3 is what is variable in incentive and the rest is fixed. So going forward, typically, for us, as a per-head yield right now is around 2.5, and we expect it to improve from here. Over the last 1.5 years, it has gone from 2, 2.5. So there has been significant improvement as it is.

Sure, ma'am. That's helpful. And very finally, ma'am, what's the sort of guidance on the EBITDA operating margins? Because we have seen a smart jump compared to the March 2020. What do we expect to do in the second half of this fiscal and going forward? I mean, can we see sort of this continuation in the improvement on a Y-o-Y basis or because we were kind of...?

There will definitely be an improvement going forward. Last year, we had closed with an EBITDA of 11.8%. And when the year started, we were looking at around 14% this year. However, we -- as you know, we started the first quarter in a very unusual way where a lot of expenses related to India business were not incurred. The second quarter, while some of them have come back, our excellent performance of international business has allowed us to repeat the similar kind of EBITDA. However, going forward, slowly, there is much regularization now of field travel and all other expenses related to India business. So we expect, therefore, we may not be able to maintain these levels of EBITDA. So for the second half of the year, I'm looking at close to 15.5% EBITDA.

[Operator Instructions] The next question is from the line of Aditya Khemka from InCred Asset Management.

Aditi ma'am, a question on the India business. So could you talk about a little bit, excluding favipiravir, how would have our base business done? And the reason for asking the question simply is that favipiravir, one cannot project or understand how long the sales of that particular molecule will last? And therefore, I want to focus more on the India business, excluding favipiravir?

Yes, thanks, Aditya, that is a very meaningful question because if you look at the IPM performance today and you look at the category, much of the players above us, almost everybody has at least one or more than one brand of favipiravir now. Or some other antiviral or anti-COVID treatment products. Let me come to our business side and give you clarity. As you know, at Indoco, we have broadly 4 markets of products. One is a pure acute which is largely anti-infective, anti-cold, respiratory kind of -- and GI very roughly. Then we have got something called the sub-chronic, which is dental; sub-chronic other, which is gynaec and opthal. And finally, we have the chronic, which is a cardiodiabeto. So our acute therapy has been very severely impacted in this -- in Q2, largely because of, a, people staying at home, infections coming down, and typically, other therapies like GI, which are linked to anti-infectives have also got impacted. So 3 of our top 4 categories were impacted for actual consumption or demand in this period. Our performance got more impacted because 20% of our top line, especially in the acute therapies, comes from one state, Maharashtra. And for us as well as for the industry, Maharashtra has given a huge setback because of the heavy COVID situation here. Coming to our sub-chronic dental, we have actually done quite well. And Q2, all the dental products are in growth and some doing exceedingly well. Opthal and gynaec -- opthal, in particular, was a therapy where we were much impacted because the ophthalmologist was not at all in the chamber. But it is showing good recovery now. And cardiodiabeto, we have lot of promise, and going forward, we should also do well. So just coming back to what you said, with and without favipiravir, kind of, as in before most of our top line, say, 95% of our top line is severely dependent on generation of new prescription, or prescriptions per se. And with doctors not being in the chambers, senior-age doctors not being in the chamber, the therapy is getting impacted. Typically, we have taken a brunt. I'm very sure now with things normalizing and field working, which actually became -- is getting towards normal. October, it has come to around 70% of normal. Going forward, it will further get normalized. Managers were not traveling at all. They have started traveling now. I'm sure as soon as the wee of kind of regularization in the environment happens, our core [indiscernible] therapy should also bounce back.

Got it. Understood, ma'am. And on the follow-up from the previous participant around your projection for the second half EBITDA margins, I'm slightly surprised that you're talking of a sequential decline. And I'll tell you the reason. So basically, if I see your employee expenses, there seems to be no sort of lower expenses. Anyways in the first half, our employee expenses seems to have grown 11%, 12% over last year, which should be in the absence of incremental hiring of MRs, that should be the sort of a normal growth with that expenditure. Same goes for your R&D expense. If I add up the R&D expense for the first half, we have grown about 15% year-over-year in R&D expense. And then your other expenses is just showing sort of minus 5%, 6% trajectory first half over first half. So even if your other expenses for the second half grow 10% year-over-year, right, and assuming that the other cost remain in the same trajectory as they are, I do not understand mathematically how you can arrive up to 15.5% margin?

Yes. Aditya, while Q2 domestic and it is India Business, which is truly driving margin at this stage for Indoco. Although there's great coverage of operational cost because of international doing well now. So we are still factoring for -- because while I'm very confident India Business will come back in the second half. Frankly, to what extent the COVID impact is likely to drag and to what extent it is likely to impact India business top line. So my commitment is taking into account an India business which may not revive entirely even in Q3. If India Business is back to normal, the numbers definitely will be much better.

Fair enough, ma'am. But I was just saying that even in the scenario of the India Business doing what it is doing currently, right, and your Europe continues to improve, given that our supplies from Baddi and all are getting normalized, and we are getting business from Europe the way we are, right, if I just -- and if I just sort of do a back-of-the-envelope calculation on your gross margin sustaining where it is, employee cost sustaining the Y-o-Y growth, R&D sustaining the Y-o-Y growth and other expenses remaining a little subdued because if the top line won't come, the expenditure also won't come, right? Both will come together...

Right. Right.

So in that case, I mean, just mathematically, I'm not able to arrive at the...

Okay, we'll look at the math again, but [indiscernible] better.

Sure. Okay. Perfect, ma'am. Ma'am, one more question on the -- again, similar lines as the previous participant on the trade payable side, just to help my understanding, so I understand we have to build up inventory, and we have to give more credit to the customers in these times, I get that, and we're obviously buying more material in order to make more product, right, so I understand that. But a decrease in payable would imply that we are actually paying them almost upfront? Or we are paying them in very good succession after placing the order versus earlier, let's say, getting a 60-day credit period or 45-day credit period. So I think the previous participant's question remained a little unanswered. Why is it that we are paying our vendors quicker? That is the key question. I mean we're clearly paying them quicker, that's visible in the trade payable number, but why is it that we are paying them quicker? And secondly, would this paying quicker continue in the interest of keeping inventory levels high and keeping ourselves well stocked with KSMs? Or will this paying quicker now reverse because whatever we had to do in terms of building the inventory and stock has been done, and now we need to revert to the normalized payment time lines?

Yes, yes. Aditya, I'll take the second part of your question first. This is a done thing now. There's no quick payment. One thing, we have enough stock from the starting material, both in API and formulation. Point number two, we are having enough inventory. And third most important point is because of our past problems, the working capital cycle had got a little stretched. So we were paying late, which we have corrected now. And now -- that's why it seems that the number of days have come down. So going ahead, we have learned to pay in time now, now that the issues are sorted out.

Understood, Sundeep, sir. Perfect. Just one last question. In FY '20, what was our total remediation cost included in other expenses?

In FY '20?

Yes, March '20, year ending March '20?.

INR 5 crore.

Total remediation cost of INR 5 crores. And are we still incurring any remediation costs connected to Plant-I?

Yes. Some handholding is going on, we expect around INR 2 crores this year.

INR 2 crores this year. And what would be the capacity utilization for Baddi now for the European market and Goa II now for the U.S. market?

Yes. We still have a long way to go. Order book looks good. Capacity, we have quite a good picture of capacity. So there's -- I think in a one-to-one also I told you in the past that Baddi III, which we acquired from Micro Labs, has a long way to go. We have started dispatching quite a number of containers from there to U.K. We have more capacity, all in all to say.

Right. But print utilization, any color Sundeep, sir?

See, we have promised the financial community that we will not incur any more capital expenditure worth talking about for another 2.5 to 3 years minimum. So till then, the capacity which we have, Goa will be utilized majorly for U.S. and Europe will be from Baddi I and Baddi III. So for at least 2.5 to 3 years, we need not look at any building any more new capacity.

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

My first question is towards U.S. things for you register. I just wanted to know if there are certain milestone payments also included in this number?

Yes, yes.

Ma'am, would it be possible to quantify that for me, please?

We will get back to you with the details later.

Sure, ma'am. And the second question was on the India Business. So as what's clearly mentioned in the press release that there were certain products which have got benefited for COVID. Ma'am, would it be possible to quantify what would be the growth excluding this -- these products in our base India Business?

So there are 2 products which sharply got our upside, one is our erythromycin brand, ATM, which for this quarter has shown a growth of around 50%. And the other product is Karvol plus, which has done around 2.5 -- 250 percentage points. So it's like quite high. So in actual -- but in actual value terms, this is not very substantial. Okay? So Karvol Plus was [indiscernible] than INR 17 crore over -- yes, over INR 11 crores, yes. And ATM -- sorry, ATM was then INR 17 crores over INR 11 crores and Karvol plus INR 17 crores over INR 5 crores. Okay?

Sure, ma'am. Understood. And my final question was towards the Patalganga plant, ma'am. We fully -- how do we intent to ramp up this facility? And what kind of steels could be added to the API [indiscernible] from the plant? Any color on that would be very...

Yes. So the expansion at Patalganga had been done specifically in anticipation of the high-volume intake for our own consumption. And as you have seen, U.S. for 2 regular quarters we have seen the kind of U.S. sales that have come in for the company. We expect lot of consumption to happen for internal use itself. So therefore, going forward, the plant capacity will be utilized. Right now, the new block is under validation and the batches from that site are under regulatory filing, et cetera. There will be a short period before which we can use that capacity. Meanwhile, API as a division is exploring many other possibilities, including intermediates or some other APIs, which now given the market conditions we might be able to take advantage of.

[Operator Instructions] The next question is from the line of Charulata Gaidhani from Dalal & Broacha.

Congrats for the good set of numbers. I wanted your view on U.S. exports for the second half and FY '22? How are you looking?

Yes. See, Charulata, as we already have been giving guidance that for the whole year, we should do around INR 150 crore, so we stick by that. So that would -- and for the next year, we are looking at around INR 250 crore to at least come in from U.S.

Okay. And you have stated that whatever product launches has happened in Q1, you have got repeat orders for those?

Yes, yes, yes.

Yes, yes. Correct.

Okay. So then what type of a growth -- normal -- what would be the normal growth that you would expect from U.S. apart from new launches?

See, the second half of the year, now we have to do around INR 80 crores, which is going to come marginally from repeat orders of existing supplies and a lot from new launches, again. Okay? So next year will be the first year in which we have any kind of ways to think about. So I think we should not be looking at growth at this stage. As such, from the numbers I've shared with you, we would be doing in excess of 60% growth in any case.

Correct.

Right. Okay. And how do you see the demand position in U.S. as well as Europe? Is it more towards COVID-related products?

We do not have any COVID range for U.S. or Europe. I mean, we have some products which can be used for treatment of COVID, but that's not the intent with which -- none of the upside today has got anything to do with COVID.

Okay. And how much of Europe would be paracetamol?

I think around 50%, 35% of...

A little less than 30%.

A little less than 30%.

The next question is from the line of Aditya Khemka from InCred Asset Management.

Sundeep, sir, on the cash flow side. So I was just considering we have about a net debt of INR 200-odd crores, correct me if I'm wrong. And given that it's a enough cash generation this year would be better than INR 120 crores that we did last year. So we'd be left with very little debt at the end of the year. And then the year following, which is FY '22, we should be sort of a net cash company. Any thoughts on how company plans to utilize the cash, which would come in FY '22?

Yes, as we said, the cash generation, the first priority is to square off the loans. So we still have INR 145 crores of long-term debt, that will be our top most priority, as and when it falls due to repay that. And the short-term borrowing is swinging between INR 120 crore, INR 125 crore in that range. So together, it is around INR 270 crores. So that is...

Okay. That's a gross debt number.

Sorry?

That's a gross debt number.

Yes, yes, yes.

It is not minus cash. Okay.

Yes. So short-term debt would continue taking into account the inventory buildup for U.S. as new launches come along, finished goods inventory for India. It may not be INR 125 crores, but it may come down below INR 100 crores also. And I think it's a little bit far away to think that once we become a cashless company, what is to be done, that is 2 years ahead.

See, as such, Aditya, there are lot of plans.

Yes.

We will share them with you as and when things are. There is a lot to be done in India Business, to be honest. The whole lockdown story, the digital side of marketing, it's like we've just started what is like a drop in the ocean as regards digital. We've done it more because we were pushed against the wall and we couldn't meet the doctors. But if you take it beyond this kind of a demand need of digital and actually start using digital for growth in sales then the size and limit to what can be done to improve relationships with doctors, work on the sub-chronic and chronic areas, all of that is going to possibly need a lot of investments in the initial phase.

Right. No ma'am, pardon us but we, as individuals, are just very inpatient. Not [indiscernible] as you guys are, but -- which is why I was trying to look 1, 2 years forward and not...

The other thing is, if you look at our dental portfolio also, we are working to move it slowly towards OTX. That alone will also need a lot of investment in inventories alone because the first thing to be done for that is to increase reach. We have to double the reach we have today with retailers. That kind of inventory buildup we'll also need. So there's lots happening as it unfolds even year. And before back itself, we will keep sharing with the community.

Perfect. Perfect, ma'am. That's very good to know. Ma'am on the U.S. business side, on the ophthalmic portfolio, obviously, we haven't launched those products yet. But just I was trying to map out the supply that is approaching the U.S. market on the ophthalmic segment. And again, correct me if I'm wrong, but there seems to be a lot more pipeline building into the ophthalmic generic space as in much more competition for this space versus what use to be there, let's say, 2 years, 3 years earlier. I mean I don't want to name any companies, but you would be aware of so many other companies now starting to talk about and filing ophthalmic products. So in that context, with our partnership model where we sort of give our product to a partner and he takes a margin to sell the product and then us competing with these people who are integrated to that extent. They own the back end and the front end both, and therefore, have more margin to play around with. Do you see our competitiveness in the ophthalmic portfolio declining because of these new entrants in this space?

Well, first and foremost, the partner we have is a very strong partner. And the intent is to get market share. Because with a strong capable partner, the first thing you get is a large market share. So that will continue to be an advantage for us. The second thing is that we are backward integrated on most of these ophthalmic products. Because it is largely the kilo manufacturing like APIs, which form part of the heavy cost base. So we are [ Akon ] control. The other thing is that 90% of our opthal portfolio, as I said, we are backward integrated. And all of these are very difficult to do with APIs also and difficult to do formulations. We are supplying research quantities as well as commercial quantities to many of the so-called -- will be our competitors, Aditya, if I had to define this. So I don't see much concern on margin front for us.

To add further -- Aditya, can you hear me?

Yes, sir, I can.

Yes. Some of the products are very unique, and at least one product ophthalmic suspension decides the innovator we will be the first in the market along with our partner. So to that extent, we have covered enormous ground, I feel.

And regarding your pipeline in the ophthalmic space, Sundeep sir, would you have more such products where there are very few people trying to develop it, specifically because I think ophthalmic drops seems to be something that's getting fairly commoditized, but there has been some space in the ophthalmic space and ophthalmic gel area?

We are having 2 ophthalmic suspensions. One will be launched in the market in U.S. in January and the second one would be sometime in April.

So we are -- Aditya, beyond the vanilla Clear Solution, which have become very commoditized, we have lot of product, like Sundeep said, in suspension, difficult to do suspension, thick solutions, which are difficult to fill, evaluate and which requires clinical which are -- -- our front-end has also done. So we are in this space with a different intent. Yes, there are a few key players who are also looking good. But I don't see much issue. We already locked out on a lot in the last 3 years, especially after creating [indiscernible] so well as well as latanoprost. So a lot of lost opportunity. I think going forward, we will have a lot to recover.

Right. Right. And ma'am, when it comes to hormonal ophthalmic products, I know we don't do hormones, historically speaking, but any thoughts of entering this space?

Not at this stage because we will need a separate facility for that. And we at least stay committed now for no more capacity of CapEx for Indoco.

Next question is from the line of Anshul Saigal from Kotak PMS.

Congrats on good results. Mr. Bambolkar, the Jan launch that you referred to, it is Brinzolamide, is it?

We cannot commit names at this stage, sir, because of the agreement with our patent partners.

Okay. This -- okay. But this product, has it gotten delayed? If I may ask that? Is that a question that you can answer ma'am?

Yes, surely. It is in the last stages of approval from U.S. FDA for the scale-up related data has gone to them. They are coming back with things. And the discussion is on. We expect the approval any time soon.

Okay. Second, despite an India Business on a -- of course, on a quarter-on-quarter basis, we are up, but on a year-on-year basis, we are down. And still, we've seen -- because of the International business doing well, probably, we've seen a gross margin expansion of about 200 basis points on a Q-on-Q basis and about 300 basis points on a year-on-year basis.

Yes, yes.

Now, is that because our international business is higher gross margin?

No. Well, yes and no. You can't say the whole of International business. This is a combination of product mix, business mix coming together. U.S. -- International U.S. is definitely much higher-margin than International Europe, not because of the geography but because Europe for us is more of a pure contract manufacturing business. So in this -- if you see Q2 in particular, U.S. has equaled Europe, almost in number, and that has really helped. In addition to that, India Business, like you said, is lower than last year, but still higher than the previous year and all expenses on India Business did not come back, right? So if you look at profitability or margin perspective, in U.S., India are good margins, very good margin business. API is a decent margin business. Comparatively, manufacturing to Europe, if it is pure contract manufacturing, it's not a very great business. But when the volumes come in from that business also, the kind of cost coverage that happens that has helped our EBITDA.

Okay. And did I hear you right when you said that for next year, we could be targeting as much as INR 250 crore revenues from the U.S.?

Yes.

Yes, yes,

Isn't that -- I mean, if we understand right, initially, our target was somewhere between INR 175 crores and INR 200 crores. So this means that we've got greater visibility on the U.S. business to repeat this...

Current year is INR 150 crores.

INR 150 crores.

I mean, for the next year.

Yes, yes. There is much better visibility now.

Yes, yes.

Largely on account of the kind of approvals coming in, you get a sense of things, so we expect better visibility now.

And even for the current year, I think our expectation was between INR 100 crores and INR 125 crores. So if you saw our target is now INR 150 million, then clearly, there is also, for the current year, there is greater visibility.

I think before the Q1 call itself, we have been saying INR 150 crores. So that's very much on the cards.

Okay. Can you, ma'am, just throw some light also on the Teva partnership? How many products are now under consideration? What kind of an opportunity can this be? Any color on that? Has it evolved further in the last 3, 4 months?

Yes, a lot of things are happening, but Teva being Teva and how large it is -- things are at various stages, there are 7 to 8 products that are still live with Teva for the future. Of the remaining 10 -- out of the remaining 10, 7 products are under discussion for coming to Indoco. And of these, 2 are in absolute last stages. They've actually almost come over, but with FDA, there is some communication going on. When that is cleared, we will honestly be able to pay [indiscernible] and we can sell them.

So our sort of guidance or target for next year includes the ramp-up on the Teva partnership for FY '22?

Certainly.

Yes, yes.

Okay. Also, as you mentioned in the initial comments that the India business or the India market as a whole is kind of revising with a 4% growth in the September month. Has that revival continued in the current quarter? And hence, what does that bode for us in the India business for the second half?

Right. So for us, unfortunately, although India Business and overall [indiscernible] has revived because of our strong sort of dependence or contribution coming from absolute pure acute therapies like anti-infective respiratory, we have not got the kind of upside, which otherwise, some of our peers have got from the market. But despite that, if you look at the company's performance month-on-month, in absolute value terms, also, there is a good increment. But we have a kind of a portfolio of close to 40%, which is very seasonal, and season was Q2, to be honest. So although on Q3 basis, we will grow better than the last year -- we will do better than last year, but those therapies continue to be under stress, right? So we -- I see the for second half -- for the first half, we have de-grown by around 6%. For the second half, I will look at marginal growth. This is despite 3 to 4 major categories in de-growth for us and the industry.

Okay. Any color on the -- I think you have spoken of the diabetes product in the previous quarter?

Yes. Yes. Yes. Aloja.

Yes, please. If you could just talk a little bit about that. How that is faring? Any developments there?

Yes. So Aloja will complete 1 year next week. We are celebrating the first year for Aloja. And Aloja with metformin, Aloja M is getting launched in a couple of months now. So Aloja, Aloja M for the year, we have taken a target of INR 10 crores, which I'm pretty confident we'll be close to it.

Okay. And my final question one. On our procurements, products that we buy, say, key starting materials of [indiscernible], et cetera, do we buy them through agents? Or do we buy them through direct sellers?

Direct sellers.

Direct manufacturers.

Yes, direct manufacturers.

Okay. So their decline in payables is because the direct manufacturers have kind of tightened or we have gone back to them and said that we can pay -- they are okay to pay on -- pay [ on year ]?

Look, if you have been following the company and what Sundeep said, we've been through a huge phase in the last 3 years where a lot of our partners, stakeholders, suppliers have actually stayed with us despite us not sort of returning the money in time. It hasn't stretched, let me say. So 2 things have happened. One, we are paying back some of the stretched suppliers for time. The second thing, as I said, specifically, with the U.S. market revising for us and U.S. International Formulation business coming up, API wanted to be very sure that we'll be able to deliver the packing material and active drugs that the formulation team will need. Therefore, there has been a building up of API inventory, okay?

Right, right.

Yes, Mandar, I think would like to add something. Yes.

See, one more factor. During last year, we have significant capital expenditure. So we build -- completed INR 100 crore API facility and all. So to some extent, that impact is also there. Because currently, we are not -- we have limited our CapEx. So CapEx creditors are also reduced to a large extent. So it's a combination of both the impact. So I thought I should...

Sure. And -- and this working capital in the second half, it should ease off from current levels?

Yes, yes.

Yes. Absolutely.

The next question is from the line of Anupam Agarwal from Lucky Investments.

Ma'am, I just wanted to ask you, you alluded to a U.S. number of INR 250 crores for the next year. Can you give us a sense of how the order book will shape up in the current year and next year? Are we sticking to our guidance? Or are we revising that?

This year, we are expecting to do INR 225 crores for Europe. And next year, we expect that number to go up -- go up by around 20% -- 15% to 20%.

All right. All right. And coming to your business breakup, you alluded to -- you made a comment that India has the best margins and followed by other regions. In a pecking -- if I have to ask you based on pecking order, how the margins are across our business geographies?

Pecking order, I can give you. Don't ask me numbers. U.S. and Europe -- U.S. and India are similar followed by API at this stage because we run it like a boutique business for our own consumption kind of, then followed by the contract manufacturing to Europe.

Okay. Sundeep, sir, another question.

I'm sorry, we forgot about [indiscernible]? [indiscernible] would come next to India, U.S. in margin.

Okay. Sundeep, sir, you alluded to a much easier CapEx cycle from coming year till the next 3 years. But your cash flow -- if we see, our consolidated cash flow for the first half, we've already done about INR 20 crores of payment towards capital expenditure, which is at par with what we have done in the whole of last year?

Yes. Yes.

So I mean, it's not...

Yes. We had guided that we will not exceed INR 50 crore or INR 55 crore in capital expenditure. So for the half year ending, we are at around INR 20 crore. So we are well on target.

Right. And that INR 50 crores is going towards Patalganga mainly?

No, no, no, across the company.

Maintenance CapEx.

Maintenance CapEx across the organization.

We have 8 manufacturing sites.

The next question is from the line of [ Vipul Kumar Shah ], an individual investor.

Congratulations for a very good set of numbers. So I just want to ask from INR 150 crores to INR 250 crores U.S. next year, which products will drive this growth?

It's a basket of products. We have quite a few solid orals also, files, which are awaiting approval. There are a lot of injectables and ophthalmic file. So it's difficult at this stage to say exactly which. Also because we have partnered on many of these products, I'm not free to give that kind of information openly. Yes?

See, right now, we have 4 tablets and 4 injectables already in the U.S. market. So the growth on this and the new launches, that's how the confidence is coming that we'll do INR 250 crore next year.

Thank you. As there are no further questions, I now hand the conference over to Mr. Vishal Manchanda for closing comments.

Thanks, everyone, for participating in the call. Look forward to see you over the next call. Thank you very much.

Thank you. From the management team, I would like to thank each one of you for your valuable time, and happy Diwali. Stay safe. All the best to your families. Thank you.

Happy Diwali. Thank you.

Thank you. Ladies and gentlemen, on behalf of Nirmal Bang Institutional Equities, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.