Indoco Remedies Limited (INDOCO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Indoco Remedies Limited Q1 FY '22 Earnings Conference Call, hosted by Nirmal Bang Equities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vishal Manchanda from Nirmal Bang Equities. Thank you, and over to you, sir.

Hi. Good afternoon, everyone. Welcome to the Q1 '22 Earnings Call of Indoco Remedies Limited. We thank the Indoco 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; and Mr. Vilas Nagare, President, Corporate Affairs and M&A. I now hand over the call to the Indoco Remedies management. Over to you, sir.

Thank you, Vishal. Good afternoon, all the participants. Hope you and your family members are all safe and healthy. Before we begin, I'm happy to share Indoco's new brand identity. We are proud to announce the launch of our new corporate brand identity with a redesigned logo. This new identity comes with Indoco entering into its 75th year of operations. And at a time when the company is on the verge of an unprecedented zeal for growth in both its domestic and global operations. The new identity captures our core values and the younger, bolder and dynamic nature of Indoco's health. The bowing R of remedies indicates the respectful bow to the heart of India. Atop of the eye to bring out our core value, respectfully Indian at heart, global in vision. Now on to the business highlights. The net revenues of the company grew by 42.9% at INR 381 crores compared to INR 267 crores. EBITDA to net sales for the quarter is at 22.8% at INR 86.8 crores compared to INR 48.9 crores. Profit after tax to net sales for the quarter is at 10.4% at INR 39.6 crores compared to INR 17.2 crores. Earnings per share for the quarter is INR 4.30 compared to INR 1.87 for the same quarter last year. Domestic formulation business. The company runs 29th in the IPM with market share of 0.66% as on 30th June as per APAC's data. In terms of prescription generation, the company ranked 21st as per IQVIA. Revenues from domestic formulations business grew by 45.8% at INR 215 crores compared to INR 147 crores for the same quarter last year. Excellent performance of anti-infective and respiratory therapeutic segment resulted in a robust growth during the quarter. Indoco launched 2 products during the quarter 1, NARICOVER lozenges under the respiratory segment and the second Multical 6,000 under Vitamin, Mineral and Nutrient segment. Now on to the International business. Revenues from international business. Formulation business posted a healthy growth of 59.7% at INR 152 crores compared to INR 95 crores. Revenues from regulated markets grew by 67.7% at INR 128 crores compared to INR 76 crores. Revenues from U.S. business for the quarter grew by 71.9% at INR 46 crores as against INR 27 crores for the same quarter last year. The major portion of growth contributed by brinzolamide ophthalmic suspension. Currently, we have 16 products in the U.S. market, which comprised of 4 solid lozenges, 10 injectables and 2 ophthalmic suspensions. Revenues from Europe for the quarter grew by 65.4% at INR 79 crores as against INR 48 crores for the same quarter last year. Increased demand for analgesics in U.K. and AOK tender in Germany supplies have boosted sales in Europe. Revenues from South Africa, Australia and New Zealand are at INR 2.9 crores against INR 1.8 crore. Revenues from emerging markets for the quarter grew by 27.3% at INR 24 crores against INR 19 crores. Coming to the API business. External sales of the API business degrew during the quarter. The degrowth is on account of higher captive consumption, which is at 63% of the total API dispatches. Revenues from CRO and analytical services for the quarter are at INR 2.8 crores against INR 1.6 crores. That's all about the business highlights for the first quarter. And I now request the participants to put up their questions. Thank you all.

[Operator Instructions] We have the first question from the line of Praful Bohra from Systematix.

Sir, is the entire profit contribution from brinzolamide reflecting in this quarter in the U.S. business?

Sorry, I didn't hear you properly.

Sir, the U.S. reflects the entire profit contribution from brinzolamide or would it also come in subsequent quarters?

Yes. So I think the work is we supply brinzolamide to Teva. Teva then sells it in the market. And based on the sales, then the profit generated comes back. So if you're asking if this profit is regarding to the kind of supply we might have made to Teva, then it is not. It has more got to do with the sales Teva has got for the product in U.S. market. That's going to be...

Sure, yes. So the question -- yes, exactly. So the question was the profit share from whatever sales we would have done in the last quarter, that would reflect in the next quarter, right?

Correct. Apologies for my voice, please. I have a bad cold.

Okay. Sure. And secondly, on the India business, so we saw very strong growth in the first 2 months. How's the trend been now in July that we're almost through with July and half of August almost. Has the trend continued then?

So I will talk to you about July sales in the next meeting we have for the MDA discussion. But it is safe for me to say that also in the month of April and May, we got strong sort of tailwinds with a couple of products, mainly Karvol Plus and ATM. It is safe to say that the entire basket of key legacy products for the company did exceedingly well for the whole quarter. And similar trends continue for this quarter as well.

[Operator Instructions] We have the next question from the line of Abdulkader Puranwala from Anand Rathi.

So my first question is on the, so as the earlier participant, too, was asking. So ma'am, if I see the India growth on the branded side -- the brand-specific side, then apart from 2, 3 brands, which I believe there will be some benefit because of COVID, the growth in the other brands have been in low single digits. So are we saying that the growth has now picked up in other brands as well?

If you're referring to performance on the other brands, so other like Cyclopam and Sensodent-K, almost all the other products have grown very well in this period. And these products have also started doing well now.

Sure, ma'am, yes. And my second question was on the gross margin front. So even though in the India side, there will be some benefit of COVID, but the gross margin, at least on an annual basis, has increased by close to 100 or 110 bps. So would this largely be on account of the profit share income that we have received in U.S?

No, no. It is -- the margin increase you see in this quarter have largely got to do with the India business performance. Because the mix in this quarter, if you're talking whole year basis, yes it is the product mix in the India business, yes.

Sure, sure. And my final question is on the promotion cost. So ma'am, how are we standing on this now? I mean, is there a complete recovery in terms of commission cost? Is it back to the pre-COVID levels? So are we still seeing some benefit because of the digitization initiatives that we have taken last year?

Yes. In Q1, we saw some benefit. Because of the second wave, there was not much working happening. So I would say around 60% promotion-related costs have come back, 40% are yet to come back. The bigger saving was in travel in the first quarter. We expect that to steadily start going up as the quarters progress.

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

Congrats on the good set of numbers. My query pertains to the increased expenses in terms of R&D spend and also other expenses. Can you guide in terms of how far R&D spend can go up to and also other expense?

Yes. Yes, Charulata, R&D expenses will stabilize around this, whatever has happened in this quarter, because we have got an impressive pipeline going forward for U.S. and Europe of our complex injectables, difficult-to-formulate ophthalmic suspensions as well as XR that is sustained release tablets. So the point I'm trying to make is we will invest money at the right time and at the right point to maximize our return on investment. But for the time being, for the next 3 to 4 quarters, you can take this as a sort of figure for R&D per quarter.

Your question on other expenses, Charulata, you must remember that almost 60% of our other expenses are actually variable and attached to the sales. So you will see a kind of an increase in them whenever the top line increases.

Okay. Okay. And have there been any filings -- additional filings for regulated markets?

Filings will keep happening. Whether it happens in this quarter on the next quarter, that is fine. But during the year, we will target 6 minimum filings for the U.S. and Europe as well.

We have the next question from the line of Aditya Khemka from InCred Asset Management.

Firstly, on the API side, debt capacity that we had increased in Patalganga, I think the capacity has gone up 3x. Is the entire capacity now utilized because you are seeing a decline in next gen of sales due to internal consumption?

No, Aditya. Capacity is yet to be fully utilized. On whatever we are making right now, majority of it, like 65% to 70% is going in internal consumption. Meanwhile, we had built an extra building in Patalganga 2 years back and we are provided for about 12 reactors. So that will be taken up during this year as soon as the monsoon is over, around November, with increase in warehousing capacity also. So that should, again, increase the manufacturing capacity by at least 50% to 60% further. So we should be in good terms within 8 to 9 months from today.

Yes. Understood. And so therefore, currently in Patalganga, what is the capacity utilization that we have? Our official potential capacity that we can have there?

Right now, we are utilizing 65% of the capacity.

Understood. Understood. And second question on the U.S. business, so while brinzo, obviously, we did not get the entire profit share, but what was the milestone income this quarter from different products that we must -- partnered with our partners?

It was around INR 15.

1-5?

Yes, yes, yes.

Understood. Last question on the gross margin pressures. So we keep hearing from other pharma companies, price of raw material freight cost has gone up and that is impacting gross margins as well as other expenses because of trade cost. How are we placed there and what has been our experience?

Yes. Our 10 partners abroad, I won't mention any names, but there have been ample telling enough to understand the position which we are facing. And we have appealed to them from time to time. When realistically, we have seen high carbon cost all-freight or whatever. So that extent, things have been on the controlled pressure. I wouldn't say there is no pressure. Obviously there is pressure, but we have been able to control it.

Understood, and just lastly on the new logo, new corporate identity, is there any major shift in the strategy along with this? Or is this something which has been done to give the -- to give a new brand to the company? I mean just trying to understand the purpose of the new identity.

Aditya, you have known us long enough to know that we would not just do something to paint a picture. Obviously, the new logo indicates and signifies a shift in the manner in which the company now thinks. It is driven by a couple of things. Number one, of course, the correction in all our issues related to the reg markets which have allowed us to come back on our feet and stand strong. And that allows us a lot of leeway to push ahead in the India business as well. So certainly, the logo indicates a new Indoco.

Understood. And sorry, I had one more. On the personnel changes, have you done any significant top level, mid-level changes in the India business? As I understand it, we needed some new blood, new rigor in the business to push it ahead. So if you can talk about a bit of -- if there has been any significant changes at the medium to top level at the India business.

So, Aditya, in the India business, we have added a position of Chief Marketing Officer to drive strategies and particularly push new introductions and their performance to create a larger appetite for growth. In the API business, we have a person the level of Vice President, Technical Operations, suit right the API technical production and process side going further. In API business development, we have a person at similar level who will further drive API stand-alone sales for the organization. In human resources, we have a person, a senior GM AVP level coming in. And human capital optimization, specifically in the Indian sales and marketing side, the function has been created to look at SFEs, sales force effectiveness, increase per man return. And overall, see that the organization is ready for all the new opportunities.

[Operator Instructions] We have the next question from the line of Surajit Pal from Prabhudas Lilladher.

For a good set of results, could you just throw me out is that -- what kind of percentage of profit share you have with your partner on brinzolamide and other products in U.S.?

Surajit, I think you'll appreciate that there are certain confidentiality clauses in all our agreements which do not permit us to divulge specific numbers and specific terms and conditions of any contract. So by that, I'm bound not to give out classified information.

Not an issue. The initial time, I mean, their expenditure on R&D during the development period, they are supposed to deduct it from the initial profit before sharing it between you and Teva. So that cost is totally deducted? Or still remain to be deducted?

We did not understand your question. Can you repeat?

See, the initial profit will be deducted by whatever the investment made by you and them during the development phase, right? That is the typical...

Yes. All costs have to be deducted. But there are investments, there are expenditures, and cost and profit share, right?

Yes.

So now it is all clear. So whatever the profit will be coming, there will be no additional cost to be deducted as of now?

Yes, perfect.

Okay. Could you throw some light on domestic market growth this time? What kind of product it is verily? Antibiotic, anti-infective or pain management, what kind of product you have that's got the good traction this time?

Yes. So as I said at beginning, 2 products really stood out for us this quarter. One, of course, was the Karvol Plus, which is a nasal decongestant, which moved very well because of the third wave of COVID it's utilization. That is one. The second product which did exceedingly well is an antibiotic azithromycin brand ATM. We are now the third largest sort of player in the azithromycin market. Our brand is doing exceedingly well. These are the 2 products in addition to some other mouthwash, [ like Cresta ] which also did well. Having [ parabens ] our window did well. But other than this, it is our non-COVID basket also which did very well, which is other respiratory products like FEBREX PLUS. It has whole host of stomatological products. It has got other antibiotics-like cefuroxime. Because after the second wave, there was -- there has been a good amount of use of upper respiratory tract related antibiotics. So unlike the first wave, it was not just azithromycin, but there are other antibiotics. So overall, respiratory, antibiotics, both segments did very well. And other than that, many of the other segments on a very low base of last year have done considerably well.

And how do you think that this will continue? Or do you think there's some other regions to drive going forward?

So these are getting into the biggest quarter for the Indian business, for companies like us, which have higher acute therapy products. So actually, in the shorter term, I'm very sure this will continue. It may not come from exactly the same molecules. Overall for the company, you will see good performance even in Q2.

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

Aditi, ma'am, earlier you guided for INR 850 crores of India sales in FY '22. While the first quarter has seen an exponential growth, do you think we are on track to achieve this INR 850 crores of sales? Because -- why am I asking you this is because even if I take the same run rate for the next 2 quarters and knowing that the fourth quarter is generally big for India business, I think this still falls short of INR 850 crores of guidance. Can you comment on that, too?

It's a tough question you're asking me in the first quarter of the year. I was actually very pleased 3 months ago, I told you we'd do INR 850 crores. And I think after my first quarter performance, in fact, you should have greater confidence in me than before, right? And what is INR 80 crores or INR 850 crores for a catch-up game? Don't you agree?

Right. Ma'am, I do, but the first quarter has seen a lot of change from the COVID-related products like Karvol. And why I'm asking you this question is because the COVID cases have subsided in the last quarter.

Right.

So there would be some bit of sales tapering down from that segment.

Okay. Other segments will catch up, don't worry.

All right. And also, ma'am, there has been some increase in the depreciation cost. Like, may I know what is that attributed to? Like, we were doing around INR 18 crores run rate, and now it's INR 22 crores for this quarter.

Yes. As a policy, we had said that we will apportion the ANDAs and European dossiers. So we have, this quarter, over-apportioned it.

All right. Okay. Also so, sir, on the tax rate, we've seen some bit of jump on the tax rate also at around 35% for this quarter. Any comment on that?

Yes, tax rate, I'll talk about elaborately. Currently, we are in a full tax bracket. And this year, because of MAT credit, which -- we also have quite an amount of MAT credit which we will consume this year. And from next year, we should be in the new regime of 25%.

All right. And -- okay. And for this year, it will be around 20%, 25% range, right?

Next year onwards.

Okay. Next year onwards. All right. And sir, lastly, on brinzolamide, when do you expect incremental competition setting in for this product? Because I think right now, you are the only generic, right?

We cannot predict about competition. That's very difficult to predict whether anybody has filed or got approval or whatever. I mean whatever is in public domain, you and I both know.

[Operator Instructions] We have the next question from the line of Sudarshan Padmanabhan from Sundaram Mutual Fund.

Congrats on very good set of numbers. My question is a little bit more broad on the industry, the U.S. business specifically. What we see, I mean, I'm not specifically talking about Indoco, but broadly, most of the companies have disappointed in the U.S. numbers. I just would like to understand, I mean, are you seeing more price erosions on basically the oral solid or any specific category? Or is it because there is a higher amount of inventory that is being built up that there is a slower sales that's happening? I'm talking more from an industry side.

Yes. You're right. I mean the common products, like immediate-release tablets and liquid injectables, there is bound to be pressure as inventory builds up. So to that extent, you're right. But now bigger companies and specific companies like ours are pursuing very niche molecules. The important part is being there on time, on dot of time. And if you can track these molecules, you're along with the select few 3 to 4 companies on day 0. And there is, for common products, there are at least 12 to 14 players on day 0. I think that makes all the difference.

Yes. Sure. And just to -- if I look at your -- the cost, I think there has been some kind of a cost increase that specifically happened on the other expenses and the employee cost side, I mean specifically the employee cost. Has there been any kind of one-off incentives that has basically given for the staff cost?

No, the increments for the year to all the employees were announced on dot in April. So this is the employee cost for this year. Throughout the year, you'll see, every quarter, this kind of employee cost. That is point number one. And like Aditi said earlier, other expenses of promotion and marketing and travel for India business will vary with the increase in business. 60% to 65% will go up as the business goes up.

Okay. With respect to Europe, I mean, are we standing by the guidance? I mean do we see that Europe should continue to do pretty strong this year? I mean, any color on how the European business is shaping up?

Yes, Europe is strong. There's a good -- yes, a very strong position. There's a very good order pipeline. We can foresee next 3 to 4 months of very good orders. So there should not be any doubts on Europe.

So we should be achieving that target, whatever that is?

Yes, fully. Fully.

Here, about more than 23% margin. So are we going to see substantially higher margins going ahead for this year?

So the first quarter margins, as we already discussed, are a function of a couple of things. One is the huge upside to some of the products we got because of environmental conditions in India; and the other is also because of cost related to India business, they've not fully come out. So as the year goes on, Q2, for us, is a weak quarter. So I think by end of first half of the year, we will be in a much better position to talk of exact margins for the business. But as of now, both India, international look to be set for good performance.

And finally, on tax, I mean given, I think, next year, you're going to get into the new tax regime. So just, I mean, what is the kind of tax that we should see for this year and the next year?

This year, you can take on the tax, 35%. But for cash flow purpose, half of it will go from MAT credit, and only half will be pay out actual. And next year onwards, 25%.

[Operator Instructions] Mr. Manchanda, would you like to go ahead with your questions while we wait for participants?

Yes, I'll take the question. Sir, my question pertains to the milestone income which we -- so we booked about INR 15 crores this quarter. Does this milestone income pertain to new approvals? Or it pertains to sales-related goals that you would have agreed for?

No, no, no, it pertains across the board to new products.

We connect based on specific R&D achievements against a target for many of our clients.

Okay.

Okay?

So are these R&D achievements linked to approvals? Or even they are also linked to development milestones?

No, no, no. We don't say that across -- when the -- like, Q1, Q2 gets done as in a product formulation, then validation batches. After that on completion of certain amount of stability, then on filing and finally an approval, so various stages.

Okay. So this would be a recurring number?

Yes, yes. Definitely.

Got it. And sir, could you guide on new launches in the U.S. expected during the year?

Yes. There's one ophthalmic solution which we will get approval in April. By March and April first week, it's about $500 million. And quite a tricky product to develop, so we should be among the 3 or 4 players from day 1. Patent expiries in April, and there's a sustained release tablet which we should be in the market by October or November of '22.

Vishal, if you want to know in a nutshell, we have a very strong and good pipeline for this market. It comprises of almost 25 products. 4 out of them -- 6 out of them are solid lozenges, which includes XR tablet as Sundeep has mentioned. We also have 13 ophthalmic solutions, out of which 4 are suspensions, and 9 plain suspensions -- plain solutions and 6 injectables. The market size of these products are put to be at $4.6 billion, and these are going to be launched over a period of next 2 to 3 year period of time.

Great, sir. Sir, just to -- there are 13 of ophthalmic products pending approval, is that right?

Yes.

Got it. And sir, just one more clarification. In your press release, you have pointed that you have 2 ophthalmic suspensions on the market. So one, as we know, is brinzolamide. Which is the other that you would have an approval for?

The name cannot be mentioned due to confidentiality clause with the customer.

[Operator Instructions] We have the next question from the line of Vivek Gautam from GF Investments.

Sir, my query is with this work from home and pandemic, while people are stating mostly at home. So with the increased usage of laptop, mobile, is it increasing to more ophthalmic drug usages and it is beneficial to us? Number two, is the competition intensity in ophthalmic division in the U.S. and Europe much less than the other generics sort of a thing? Is the complex generic, which has been a useful thing for us?

I'll answer both your questions. The first part, I think, you were pertaining even to India, not just U.S. So yes, there is something called computer vision syndrome, which causes strain because of increased screen time usage. And therefore, you see a lot of tear substitutes in particular, a little use more in ophthalmics. So therefore, you've seen that also ophthalmic -- ophthalmologic practices got impacted. Ophthalmic products for tears, we have quite a few products, therefore, India also has done quite well. Coming to your query on U.S. and competition, yes, ophthalmology, largely because there are a lot of chronic sides to its therapy constitution and mostly geriatric based kind of anti-glaucoma and macular degeneration. So these are therapies which have -- which are showing good growth in U.S. as a segment. And yes, they are very difficult to develop and manufacture and also sterile, therefore, there is less competition.

And where do we stand in ophthalmic field in India and abroad in terms of exposure?

In India...

India and abroad, yes, both please.

In India, we are ranked, if I'm not mistaken, 8th among various peers in the ophthalmology space. We jumped the rank this year in India. We have a long way to go here still. In U.S., since we are working with Teva, it would be difficult to say what -- where Indoco stands. With Indoco-Teva, I think you have to give us some time to make a mark for our position in ophthalmology. The market is dominated by innovative players like Allergan, Alcon, Bausch & Lomb, amongst others.

And madam, our compliance, [ 50 words ] from our compliance track record with the FDA, because that is a drug from the airport, Indian drug companies. I believe our Goa plant and other plants are having a very good compliance record, if you add some -- throw some light on that.

Yes. So yes, all our sites are now FDA compliant except there is just one on which we have an overhanging warning letter. The issues related to warning letter, the resolutions are complete. Updates have gone to FDA. And in fact, we have been inviting FDA time and again to come and audit us. On the 12th of last month, we have made another attempt to officially ask them to come and audit us again. I'm hoping this time we will get a better response. If they come down to our site, they will be able to clear our warning letter and pave the way for more approvals from plant 1, which is the solid oral site for U.S. FDA. Other than that, the other sites, that is site 2 and 3, are all cleared by U.S. FDA and have been getting continuous product approvals in those sites.

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

Sundeep, sir, on the U.S. business, whatever products we had with Teva which we had to withdraw because of the warning letter on unit 2 earlier, have we relaunched most of the products that wanted to relaunch post the warning letter was removed? Or there are still certain products that we are yet to relaunch?

No, we have not yet relaunched. Two of these products we will be launching in either December or January this year, and others will then follow.

How many, in total, do we plan to relaunch over the next 2 years from those -- from that portfolio, the legacy portfolio with Teva?

4.

So 2 will be in December, January. And the other 2?

Other 2 would be after April.

After April, so FY '23?

Yes, yes.

Okay. Understood. And Aditi, ma'am, you admitted to hiring a Chief Marketing Officer in the India business. Can you talk to us a little bit about his background and how is that particular person incentivized? Is it on market share, on cash flow, on profit, on ROI? How do you evaluate that person's performance?

I can tell you that we -- that anybody hired at, like, Indian, as in the organization is directly or indirectly responsible. And of course, a lot of linkage and his CTC will be there for deliverables. Regarding background, as I said, we looked at the gap in our India business of past and specifically identified areas of weakness and targeted those. Our biggest area of weakness in the last 5, 6 years, has been our inability to create large new launches. So we have succeeded, to some extent, in that deal. But in other areas, while we have done well, we have not managed to create a large new brand and identify all the opportunities. So the election was guided by that. Yes.

Understood. But just one more clarification on this response, Aditi, ma'am. So while you -- obviously, you evaluated him and his performance is linked to the company's performance, my question was what is the criteria on which you evaluate him with? Is the criteria like ROI? Is it cash flow? Is it market share? Is it sales? I mean, just some indication. I don't want an exact sort of...

Market share. Market share, Aditya.

It's market share.

Yes. See that you will agree that as 29th ranked, where I stand today in the retail audit. It's a very crowded space and there are at least 5 players at 0.66, around me and with me. In a good month, I go to 0.7 and then I have to come back. It's a steep uphill from here if I want to jump ranks for various reasons. You must have also noted in IQVIA, we stand at 21. And in fact, if you actually count the number of prescriptions we generate, we are not too much lower than a company like Glenmark also. The problem is the kind of prescriptions because of the portfolio. So there is a definite thought process in correcting this portfolio and moving towards a much higher return for product, higher prescription, higher usage for prescription kind of intent that we're going after. Already in this quarter, because of various reasons -- you must have seen, [ upward management ] has already gone up to 2.7. And from here on, I expect it'll only climb.

Correct. Correct. So that was my next question. So in the India business, we don't need to have incremental amount, right, because we are setting that 2.7?

There would be rationalization, if at all.

If at all, okay. And what is the target for this PCPM for you, madam? I mean, today it's 2.7. Where do you see this 3 years down the road? What are you aspiring for?

Two years down, 3.

Three, and what is the ideal level at which a company with Indoco's portfolio can operate?

It can go up to 4 because we have such a high acute, and I don't want those to slow down either. Right?

Makes sense. Ma'am, we had one new launch that was stuck in litigation processes in India because of a patent issue with the innovator. Any updates on that litigation?

Yes. So we had actually gone to Supreme Court to ask for a faster [ vacation in the stay ] which was given by High Court. And Supreme Court said they cannot interfere, but they did give the High Court a deadline of 3 months within which to close this issue. So I'm hoping in the next couple of months, we will find resolution.

Okay. So the deadline is there in the next couple of months, is it?

It's a suggested deadline. Supreme Court could not put it on, but it's a strong suggestion, so I believe it will happen.

Okay. And in the case we prevail in the High Court, are we ready with the inventory and a marketing plan to launch it immediately? Or we plan to do that after we get the petition?

It's all ready.

[Operator Instructions] We have the next question from the line of Aditya Khemka from InCred AMC.

On the -- Sundeep, sir, on the European business, so while, obviously, our sales are ramping up, but I just wanted to check with the AOK tender. Is the tender supply going to be like evenly spread across the 2-year tender that we have across the quarters? Or would it be lumpy in certain quarters and then jump in some other quarters? I mean are we shipping like 6 months inventory in 1 quarter?

No, no, no. Absolutely smooth and it's actually going very strong.

Understood. Understood. And any further improvement on the Goa one? I mean, Aditi, ma'am did mention that Goa 1-year, U.S. FDA, sort of we have done the CAPA. But any indications from USFDA as to when do they want to audit and will it be a desktop audit or a physical audit? Anything?

Aditya, not to us specifically, but to the industry, they've been giving -- shifting goal posts for India when they are ready to do physical audits. And they have been very sketchy about how many virtual they will do. So really very tricky to answer. But we have tried, again, last month, and I'm hoping to hear something soon.

Got it. Got it. And on the API side, we are running at 65% of our total potential capacity. And clearly, we had customers for our API when they were able to sell externally. And I'm assuming those external sales were profitable. It means there is demand for our product if we are -- if we have enough capacity to sell more. Does that tell you that you should expand capacity faster? Maybe if there is no space in Patalganga, maybe an alternate site? I mean, I just want to dig your brains on that.

Yes, yes, yes. That is why we are doing that expansion very quickly. And certain other products which have gone up in demand, we are pushing from the Kilo Lab to Patalganga. The valuation done very quickly. So by another 2 quarters, you will see very strong performance.

But Sundeep, sir, we will hit our -- we will hit the expansion roadblock in Patalganga at some stage, right? It would not have indefinite space? Or does it have a large enough space to accommodate whatever plans you might have for the next 3 years?

Aditya, I'd just like to come in here. Look, if you look at capacity at Patalganga today, because we wanted to very much be in command of the technology, we, today, have factories on most of the processes we use for manufacturing the API. And we've been pretty conservative on taking manufacturing out. So in addition to the finished API, which comes out of Patalganga, we do make several stages of product there. In addition to that, we make certain stages at the back-end side, which makes up starting materials or the first few stages of product. The whole thing is being looked at, once again, to try and outsource capacity from all those stages so that internal capacity can be further freed. So in order to add capacity or to be able to make more API, in addition to what Sundeep said of expansion within our Patalganga site itself, we are also looking to do some kind of third-party manufacturing for some of the products. So that should give us faster results in the shorter term. But after that, certainly, there are plans to further expand API.

Yes. So the only reason I'm asking this question, and I am sort of wasting your time on this is because we see all the other API companies in India expanding capacity, seeing unprecedented demand, supporting extremely high growth on the API side. So I'm just wondering to myself, for an organization like Indoco, is it fair for you to outsource your products to third party? Or is it fair for you to build more capacity and in-source third-party products to your API plant? I mean which is a better capital allocation decision? And -- or is it a bit of both? I don't know. I'm just wondering which is a better way to go about it.

It is both, but I can tell you this. Since most of our market finished APIs are our own in the file, we are happy to make it on our own there. What I would do really is to outsource many of the stages at the beginning so that the capacity can be free for finishing the product more. Also, the first quarter had a bit to do with unpredictable extra ordering of brinzolamide for the future kind of, so the API division also was set a little bit off track because they have to put some things aside and go back to making more brinzo API. So some things like that. Otherwise, I can assure you that we'll have API to sell by end of the year.

Right. No, makes sense, ma'am, and I will leave it to you, obviously. But it just seems to me it's an industry trend where all API manufacturers are trying to in-source more products from other people and manufacture for them because the margin seems to be pretty healthy and the ROIs are pretty good. I was just wondering if this is the right way. So, last question for Sundeep, sir. Sundeep, what was your operating cash flow for this quarter for that?

Cash flow was around between INR 65 crores, INR 70 crores.

That's the operating cash flow or the cash flow after CapEx, sir?

Before CapEx.

So before CapEx, INR 65 crores, INR 70 crores.

Yes.

And after tax?

Yes, after tax.

Perfect. And what is the CapEx we incurred this quarter?

INR 21 crores.

INR 21 crores. So the plan for full year remains around INR 100 crores or INR 50 crores or INR 70 crores?

Around INR 75 crores to INR 80 crores.

INR 75 crores to INR 80 crores.

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

Yes. I just wanted 2 things. One, in terms of the profit share for U.S.. In this quarter, our revenue has been somewhere around $6 million, $6.5 million. So assuming if we supply $1 million for brinzo, what kind of a profit share can we expect? Can we expect $4 million, $5 million?

So Charulata, I think Mr. Sundeep explained it earlier. Probably you might have joined the call later. But we are binding with some of our customers, and we are really not free to discuss specific product-related margins, profits, et cetera. Safe to say that right now, most of the U.S. sales you see have come from supplier product and also from income against milestones for R&D work we are doing for the future, right?

Yes. Right. But then the profit share would normally be more than what is coming from supplies, right?

It has to be. But I think that's the comment in the time to come.

Okay. Okay. And second, in terms of the EBITDA margins, what kind of margins you think are sustainable?

I also answered this earlier. Last year, we guided to 19.5% to 20%, if you remember, for this year. But it started on an unusually great note, which is 22.8%, I'm very happy for that. Depending on the circumstances of the environment, picking up of India actual operations, how the expenses come back and how the second quarter pans out, at this stage, I'm pretty bullish to be able to do a good job on EBITDA.

We have the next question from the line of Dinesh Kotecha from KRIC.

Good set of numbers, and you said we are in a good -- but what guidance you are giving for the earlier answer was that there is certain development will be in the region of INR 16 crores to INR 17 crores in the quarter. Then also the profit, can we take -- quadruplicate -- I mean, can you make it multiple by 4 and add another 10% for the full year?

I just explained -- maybe let me repeat this. Q1 is an unnaturally different quarter. India business has got upside from a few products, good sales from another set of products. Some of the expenses related to India business have not fully come back. As the quarter progress, some of these expenses will come back. But many of the other products, which are not selling very well because our people were not out in the field will actually start doing better. Under our circumstances, it is very, very difficult to actually give you an exact number on the margins, but you can take it from me that the performance can be maintained or better.

No. But another question is that your profit, your tax is already 55% of the entire year stack. I mean, if I take that same ratio of the tax and the profit we would have, can I do that...

As I explained, in this year, we would be hit by a higher tax rate, but we would have utilized that MAT credit as well.

Yes, that -- I heard that. But I'm just trying to understand, when we are now on the -- let us say we are now on the third year, so our full year -- our results will be in the full year -- I mean, can I do that calculation on my own?

Yes, certainly.

[Operator Instructions] As we have no further questions, I would like to hand the floor back to Mr. Rahul Arora from Nirmal Bang.

I'd like to thank the management once again for extending their courtesy to us to hold this call and to all the participants for their active participation as well. Thank you all so much. Stay safe. Any parting thoughts from the management if they would like to address, please feel free.

No. Thank you very much. We've had a very good conversation with all the participants, and I'm highly thankful that all the participants took a very active role.

Stay safe and stay healthy.

Yes. All the best to all of you. Thank you.

Thank you.

Thank you, members of the management and Mr. Arora. Ladies and gentlemen, on behalf of Nirmal Bang Equities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.