Indoco Remedies Limited (INDOCO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Indoco Remedies Limited Q2 FY '22 Earnings Conference Call hosted by Centrum Broking Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Cyndrella Carvalho from Centrum Broking. Thank you, and over to you, ma'am.

Thanks, Neerav. Good afternoon, everyone. I Cyndrella Carvalho, welcome you all on behalf of Centrum Broking, and wishing everyone a very Happy Diwali. Today, we are hosting the Q2 FY '22 earnings con call of Indoco Remedies. At the outset, I thank the management of Indoco Remedies for giving us this opportunity to host the earnings call. From the management team today, we have with us Ms. Aditi Panandikar, Managing Director; Mr. Sundeep Bambolkar, Joint Managing Director; Mr. Pramod Ghorpade, Senior Vice President, Finance; Mr. Vilas Nagare, Corporate Affairs and M&A. I now hand over the con call to the management team for their opening remarks. Over to you, management team.

Thank you, Cyndrella. Good afternoon, all the participants. Hope you and your family members are all safe and healthy. Let me first begin with the business highlights. Net revenues of the company grew by 15.6% at INR 373 crore compared to 12.9% at INR 322 crore for the same quarter last year. In the first half of the year, revenues grew by 27.9% at INR 754 crore as against INR 589 crore. EBITDA to net sales for the quarter is at 23.2% at INR 86.3 crore compared to 18.7% at INR 60.2 crore. EBITDA to net sales for the first half is 23% at INR 173 crore compared to 18.5% at INR 109 crores for the same period last year. PAT to net sales for the quarter is 11.2% at INR 41.6 crore compared to 7.8% at INR 25.1 crore. PAT to net sales for the first half is 10.8% at INR 81.2 crores compared to 7.2% at INR 42.3 crores. Earnings per share for the quarter is INR 4.51 compared to INR 2.72 for the same quarter last year. EPS for the first half is INR 8.81 compared to INR 4.59 for the same period last year. Now on the Indian pharma industry. IPM has shown normalcy in sales from June '21. The sales registered for Q2 FY '22 is INR 43,064 crore with a growth of 14.6%. Most of the therapies have shown strong growth. Anti-infectives, gastrointestinals and respiratory segments have shown significant growth. In September '21, the company's rank jumped to 25th from 29th in the IPM, with market share of 0.75%. The source is Avax data. Domestic formulation business. Revenues from domestic formulation business for the quarter grew by 22.3% at INR 214 crore compared to degrowth of 6.2% at INR 175 crore same quarter last year. Major therapeutic segments, namely anti-infectives, gastrointestinals, vitamins, minerals, nutrients and ophthalmics, performed well during the quarter. For the first half, revenues grew by 33% at INR 429 crore as against INR 322 crore for the same period last year. During the quarter, 2 new products were launched, namely Renofen+ tablets, that is paracetamol with diclofenac sodium, under pain and analgesic segment; and Noxa Cream, the molecule name Ozenoxacin 1% under derma segment. The total number of new products stands at 4 for the period. Now on to the International formulation business. Revenues from International formulation business registered a growth of 11.6% at INR 136 crore as against INR 121 crore same quarter last year. For the first half, revenues grew by 32.8% at INR 288 crore as against INR 217 crore. Revenues from reg markets grew by 9.9% at 111 crore INR as against INR 101 crores. For the first half, revenues grew by 34.8% at INR 240 crores as against INR 178 crore. Revenues from U.S. business for the quarter grew by 10.2% at INR 48 crores as against INR 43 crores for the same quarter last year. For the first half, revenues grew by 33.8% at INR 94 crores as against INR 70 crores. Revenues from Europe for the quarter grew by 6.3% at INR 60 crores as against INR 56 crores for the same quarter. For the first half, revenues grew by 33.5% at INR 139 crores as against INR 104 crores for the same period. Revenues from South Africa, Australia and New Zealand for the quarter grew by 114% at INR 3.8 crores as against INR 1.8 crores. And for the first half, revenues grew by 91% at INR 6.8 crores against INR 3.5 crores. Revenues from emerging markets for the quarter grew by 20.6% at INR 24 crores as against INR 20 crores. And for the first half, revenues grew by 23.9% at INR 48 crores against INR 39 crores. Revenues from API business degrew during the quarter at 13.6% at INR 20 crores. For the first half, revenues degrew by 32% at INR 31 crores as against INR 45 crores for the same period last year. The degrowth is because of higher captive consumption, which is around at around 60% of the total API dispatches. Revenue from CRO and Analytical Services for the quarter grew by 6% at INR 3.7 crores as against INR 3.5 crores. For the first half, revenues grew by 26.5% at INR 6.5 crores as against INR 5.2 crores. 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. Be safe, be healthy. Thank you all.

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

2 questions. Firstly, in the European market, when I see sequentially compared to 1Q to 2Q, we have seen a decline in revenues, what would you attribute that to?

Yes, Aditya, we have had certain challenges in the dispatches. Container availability is the first challenge. And the second challenge is API material availability. So both these have been looked into very cautiously and very carefully and we've taken measures to see that things improve from here on.

So are you saying that some of -- so the dispatches in 2Q were significantly are -- were lower than what you were expecting? Or is it that there is a pricing challenge or a market share challenge, that's what I wanted to understand.

No, there's no pricing challenge. The dispatches were lower than what we were expecting, that's right, because of the container availability.

So as a corollary, some of these dispatches would get bunched up into 3Q and 4Q, and we should see recovery of sales, because there is no loss of sales, because it's just about dispatches.

Correct, correct. Absolutely.

Same question for the U.S. business. So now, at least I would have expected, we would have received some profit share in sales from brinzolamide into our second quarter numbers. But it doesn't seem that there is any meaningful uptick in the U.S. sales for the quarter, so what would you attribute that to?

U.S. order book is very healthy. I don't think there is any reason to be anxious or to have any sort of that kind of feeling. Very healthy order book, and we will recover in the third and fourth quarter, definitely.

But did we receive any profit share from brinzolamide in the second quarter? Have you recognized any profit share?

Aditya, over 2 quarters in piecemeal it has been coming in close to around 8.5% has come in as of now. Because this is against what they sell in U.S. actually and collect, so it's a long cycle. Yes?

Aditi ma'am, can I understand the cycle a little bit better? So when do you recognize the profit share, when they sell and pay you? So is it, when you receive it or is it when they sell?

Yes, yes. No, After they collect and then they send us. Yes.

So it's basically upon the receipt, you recognize that?

Yes, yes, yes.

Understood. Then I can understand the long cycle. That makes sense. One more question on the India business. So we did 22% growth in the second quarter, and that's obviously -- a lot of it is because -- due to recovery of the anti-infective segment coming back in the market. Can we talk a little bit about how the Chronic piece of our business, although it's very small, I understand, but the newer products which we have launched on the more specialty side, how are they sort of fairing in the marketplace and how is the progress on that front?

Yes, yes. So Aditya as you rightly said, virtually, there has been close to 90%-95% growth in anti-infectives alone, of course is aided by a good season this year and also by an extremely low base last year. So that is correct. So the acute segments, anti-infective and respiratory both really helped us this quarter. Other than that, if you have also seen the industry data, Chronic per se has been muted for various reasons. We as such have not -- don't have Chronic as a great area of strength. However, our focus division is doing decently all right. With CND which is a cardiology division, there have been some concerns. But I would rather speak about the Sub-Chronic part of our business, which is itself having the ophthal, gynac and the 2 dental divisions. So our dental divisions have done decently all right an 8% growth throughout with or without COVID, with or without seasonal or whatever, very predictable kind of sales performance. Gynac has begun doing well. The biggest gainer per se in fundamentally quality of business has been the ophthalmic business, because ophthalmology was most impacted in lockdown. And our teams really used this time to build relationships with the end users, the prescribers. We are seeing an excellent upside on the ophthal basket. This is to sum it up. So I would expect more in Q3 and Q4 from Sub-Chronic, then Chronic. And of course, the acute run I'm very confident will continue.

One follow-up on the U.S. How many products now are we setting in U.S. So brinzo is obviously one. Of the older product basket, dorzolamide I remember, we are already selling.

Yes, 12 products in total.

12 in total, we are already selling.

Yes.

And how many products are we expected to relaunch of the older ophthalmic basket?

3 to 4 more this year.

This year, FY '22.

Right.

And could you quantify any milestone payments received in U.S this quarter versus what was that in 1Q -- the milestone payments?

They are comparable. They're comparable. Pretty much, we've been, as I told you in the last call because there are several products there are both USA, Europe, and there are several research projects being done for customers. So pretty much now we have a good predictability to collections. I have to say Q1 this year was a bit on the higher side. But, otherwise, if you look at 5 quarters in running, it is pretty predictable.

And now you must have seen some regularity in dispatches, given that these rate costs have come off and hopefully, containers are more freely available in the inference correct?

Yes, I think more than freight costs there has been an issue with availability of containers. So there is a kind of a pushing ahead of sales is happening in all international markets. So that is what has impacted us. I'm sure, in a couple of quarters that will settle.

So you haven't yet seen the normalization of availability, as in even at this peak about October-November, there is scarcity of containers.

Yes, whatever we have seen for the month of October also, it continues -- problems continue.

The question is from the line of Rashmi Sancheti from InCred Capital.

Ma'am, update on India business, I'd like to know what I'm seeing from your brand data that with the decline in the COVID cases and with the growth normalizing we are seeing uptick in the sales of Febrex Plus, Cyclopam, all the growth is coming back. But at the same time Karvol Plus, Kidodent, we are seeing the Y-o-Y basis. I mean, I understand that we should see a quarter-on-quarter overall, because these products were used as COVID prescription -- I mean, co-prescription for the COVID patients.

Correct, correct.

But why are we seeing the degrowth on Y-o-Y basis?

What has happened, as I explained, is dentists or ophthalmologists were 2 categories, which were most impacted during COVID. And while doctors are coming back, I feel per se still footfall and other things are a bit of concern. And...

Ma'am sorry to interrupt you.

Yes.

[Operator Instructions] Ma'am go ahead now.

Yes, yes. Okay. So as I explained, the dental segment for us, we have 2 divisions. One is Warren Ace and the other is Warren NxGen. Warren NxGen depends on more demand creation, and there we have seen a good movement of products. In Warren Ace, we have got more of the repeat purchase or more of the counter push kind of products and there, there has been some concern of product growth coming back. But, surely -- and there are some competitors doing a little better. The segment per se is not doing well, but there are -- and we are tracking that very closely. But other than maybe a Kidodent or Sensodent KF, couple of products here and there, pretty much if you've seen most of the legacy brands across most of our divisions are doing exceedingly well.

And what about the therapy wise, because for the other competitors we are seeing a pickup in dermatology segment, but we are not seeing that kind of growth coming back in dermatology segment?

Yes, yes. For us, derma is not a key focus area. We get into dermatology because of age old products like Cloben-G, which we had and Noxa, which we just launched. But we do not really consider them derma products. They are taken through our acute division only. So, I think when you look at derma for the industry, it is more of pharmaceutical, derma, the new -- the moisturizers and all those, we are not into that. Okay?

And again on the U.S. business, $8.5 million is a profit share or profit share plus sales, which is coming from the brinzolamide suspension for the first half?

This is not in dollars first and foremost, what I said was in rupee terms.

Okay. It was INR 8.5 crores you mentioned.

Rupees, yes, yes. Share of profit against what they must have completed selling, accounting, et cetera, et cetera. So from 2 quarters ago possibly. Okay?

Okay. But are we seeing any price erosion in the new product launches that we are doing or make a planning to relaunch?

Not for that, because we are in niche segments, not for us as much. Of course, the input price is always going up for API and all, it's a standard theme across the industry, but even that is stabilizing now.

And ma'am what about the tax rate guidance, because the last time you all mentioned that cash tax of 18%, but I think the overall tax rate which I'm seeing for first half is 35%. So if you can explain on that?

Tax, okay, yes.

Rashmi, the tax rate right now is 35%.

For FY '22, you're guiding 35%?

No, no, no. For this year, it's 35%. From next year, we will go to the new tax regime, which would be 25%.

But last quarter, you mentioned something about cash tax of 18% right, in FY '22?

No, no, not 18%.

No, no, no. We have -- even last year, it was not 18%, because we had NACH Credit, which we have availed. And this year was only one year where we'll be getting the full impact of tax. And from next year, we'll be able to move to the 25% regime. We are very clear about that.

From FY '23 you will [ start ] off with the 25% regime?

Correct.

Correct, correct.

And the last question on gross margins. Are we not doing any sort of high input costs related to -- I mean, our gross margins are basically seeing the improvement sequentially?

Yes, yes, yes. So we -- the gross margin improvement is also related to the business mix. So if you were to quantify and take out say milestones and dossier income and also because the India business did so well, so it has got corrected. But as such, there is an increase in input prices directly and indirectly hitting us, even when we -- the solvent prices are going up for API manufacturing, products which we consume for our own international business, for example. But up to Q2 it is not significant, but I expect in Q3 there will be some amount of impact.

The next question is from the line of Deepan Sankaran (sic) [ Sankara ] Narayanan from Trustline PMS.

Aditi ma'am, firstly, wanted to understand this antibiotic diabetic segment in domestic market. So are we seeing aggressive growth in this segment in future? So are we planning to launch good products in this segment?

You mean anti-infectives and diabetology?

Yes.

Okay. So Indoco has almost 20% plus contribution coming from anti-infectives, and we have some big brands here. We have ATM, which is our Azithromycin brand. We have Oxipod, which is a cefpodoxime brand. And these products are doing exceedingly well. We've always -- if you are an acute heavy company, anti-infective is a large part of your portfolio. In anti-infectives per se there have not been too many new products coming in. Cefpodoxime and Azithromycin are the molecules of choice even today, and we see good demand for these products. In any case in second quarter because of season, the demand used to pick up. Now, because of COVID and post-COVID related complications also, the upper respiratory tract related anti-infectives have increased -- consumption has increased. So we are doing well there, and we expect for this momentum to continue. Coming to the antidiabetics, it is a very small portfolio for a company like Indoco, but potentially a very good one. A, for the industry, it is one of the fastest growing categories. And simply because there is a large want from the doctor community for new molecules, because its finding it difficult to bring Hb1ACs (sic) [ HbA1c ] under control, for example. So there is definitely a want here. So when there is a want, certainly, those markets always do well. It's a very competitive market. Indoco is one of the late entrants here. But on account of the product mix, which we have for U.S. where we have gone after several Para IV kind of opportunities, we have excellent products for launch in India as well. Our Aloja launch for example, is one which we have done. And in our own fashion, we will create our own place and niche in the diabetology segment.

So I remember when we are discussing, we're discussing about Alogliptin and some combination products in antidiabetic segment so?

Aloja and Aloja-M. Aloja-M has also been launched now in the market. We expect this molecule to get good sales. We are the only player in the market.

And can you provide some guidance for FY '23 in our U.S., Europe and the emerging market segment?

we are not yet -- U.S. is on a healthy growth path. And we hope to do well this year. I think maybe by end of Q3, it would be a good time to talk of numbers for the future.

And lastly, domestic placement segment, are we seeing inventories back to normal levels post-COVID now? Are we still seeing inventory at lower levels?

Inventories? Inventories of acute are still very much on the lower side. In fact, Q2 consumption was very high in some segments like respiratory, antibiotics, GI. But other, there is a good amount of stabilization. So inventories in the market, if you mean, they're still on the lower side. There is quite a high demand still. Yes, does that answer your question?

So Q3, Q4, so both, the season going away still we are expecting good growth in domestic segment for us?

Yes. So we have other products which start doing well. I'm hoping, keeping fingers crossed for an excellent performance from dental, gynac, ophthal, cardio-diabeto. And even for the acute divisions, other than the very seasonal products, which will also do their bit, we can expect good performance and growth.

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

My question pertains to the U.S., there is a 10% growth in Q2, do you expect new launches in FY '22?

Yes, yes. Last year, same quarter, we had a lot of launches, and that's how the growth was huge. But in Q3 and Q4, we will have good amount of launches, 3 to 4, at least.

And do you see an increase in the profit sharing for brinzo going up, because I believe there was an exclusivity for brinzo?

Brinzo, there's no such exclusivity.

Yes, because of first generic launch.

Yes, that's it.

And the exclusivity is created because it was a difficult product, nobody could make. It is not an exclusivity created by patent situation or anything like that.

But being a first generic it would have got good pricing, right?

Yes, yes, Charulata, whatever advantage we can derive from that, we will do it.

But has that come in or it has yet to come?

Partly it has come in, and it will come in phases.

So for -- and just confirming that milestone income of 150 million in Q1. The Q2 number also is on similar lines?

Yes, yes.

Yes, yes. As I briefly said, yes, it is predictable income.

So every quarter, we can consider 150 million?

Charulata, it depends on which product -- sort of milestone for which product gets collected, specifically [Technical Difficulty]

Aditi ma'am we're not able to hear you.

So your statement of, can we take it for granted? I said roughly, this is how we can expect this to be. Okay?

And my next question is on the India business. How many MRs are you currently having? And do you expect growth to continue in Q3 and Q4 above industry average?

Yes. So we have around 2,300 medical reps with managers, it's around 2,800. Your question on, will the India business continue to grow? Yes, even today, even if the Q2 highs of the market -- the IPM is of Q2, kind of, highs, overall, slowly the market normalization is happening. And Indoco, as such, is doing much better than IPM as well as the covered market. So we will post good growth in India business in Q3 and Q4.

The next question is from the line of Abdulkader Puranwala from Elara Capital.

My first question is on the U.S. business. Would you like to highlight any particular reason why there would be a slower uptick in brinzolamide for your partner to book sales and which is also impacting us by getting this -- the related profit sharing income getting delayed? So considering this just...

Yes, I don't think we are in a position to comment on that, honestly. But the order position is good, so I believe they know what they're doing.

And just on the guidance front, are we still maintaining our top line guidance of close to INR 16.5 billion for the fiscal '22 and EBITDA margins of 19% to 20% for the [ Q3 ]?

Yes.

The EBITDA guidance given was 19.75%.

Okay.

We stick to that guidance.

[Operator Instructions] The next question is from the line of Aejas Lakhani from Unifi Capital.

Just one question. What is the MR productivity today? Because I remember hearing that you had an aspiration to take it about 3 lakhs. Could you give some color on that?

Yes, it is currently around 2.6 -- currently around 2.6.

How do you expect to take it to this figure greater than 3?

Because we are not adding any more people, so naturally all growth that comes in sale is go towards increasing the per man return. Also there are lot of new product launches planned, that's an one area of weakness for Indoco as a company. We have done very well with our first launch this year of Noxa. And there are 3, 4 other products in the pipeline. They will also help increase the PHY.

In the German market, there's been a buyer consolidation, so does that favorably or disfavorably impact us? Could you comment a little bit about the German market?

Yes, yes. German market, we are doing well. Even now as we talk, one tender we have won and 2 more products are being planned in a similar fashion. We are the front-ended company, and we have appointed a distribution company to distribute the product all over the country, and we pay them for their distribution costs and some profit.

And I'm aware about the German tender of roughly INR 70 crores, which was expected to be the growth driver. But you're talking about 2 more incremental tenders coming in FY '22 or '23?

That will be for '23.

And would the size of these tenders be equivalent to what we won last year or...

No, these will be smaller.

And again, it will be 2-year orders?

2-year supply, yes.

And we continue to be at roughly INR 300 crores in terms of guidance in the Europe business, right for...?

Yes, yes.

The next question is from the line of Rashmi from InCred Capital.

The question on API segment, domestic as well as outside API sales, we are continuously seeing the degrowth from last quarter. Any specific reason for it?

Yes, Charulata, we are consuming most -- I'm sorry, Rashmi, we are consuming most of the API we are making right now. So the international business growth, basically, priority is being given for internal consumption. I'm hoping in a couple of quarters to be able to correct this cycle so that there will be enough to sell.

So any guidance in FY '22 will you see a similar kind of growth what we have seen in first half, right?

Yes, around 20%, we should be able to do.

And ma'am, you all have guided operating margin of 19.75% in FY '22, right EBITDA margin?

Yes, yes.

Correct. Yes.

But don't you think that first half only we have done 22% and then the 19.75% is pretty conservative, because you said that we'll be doing good amount of product launches...

Charulata -- Rashmi from Q1 to Q2, you see the numbers, despite such a robust India performance, investment in R&D has started in a big way, travel and sales promotions cost attached to India business are coming back.

Cost of goods...

Cost of goods, as you've already heard, there is incremental change. So we prefer to stay with that guidance right now. This is on sales, not total income.

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

Ma'am just a couple of some bookkeeping questions. Number one, your other operating income has come to around INR 14 crores in this quarter. So there's a sudden bump of -- like we were doing around INR 5 crores to INR 6 crores in the previous quarter. May I know what is this attributed to? What is -- why there is a sudden uptick?

Yes, it is purely a ForEx related thing -- when the orders were booked and at what they got fulfilled. It's not in our control.

And also, the depreciation cost has come down by somewhat around INR 4 crores quarter-on-quarter. Why is that?

In the first quarter, there was more amortization, that's all. So it's more of a...

Book keeping.

a book keeping thing.

And ma'am for your CapEx guidance, does it still stand at INR 80 crores, because I think in the first half, it would be around INR 56 crores?

Yes, yes. We stick by our CapEx guidance.

[Operator Instructions] The next question is from the line of [ Shanti Patel from Shanti Patel Investments ].

My question is taking into consideration all the factors, what will be the approximate turnover for the accounting year '21-'22? And what will be the PAT margin there on?

So we are certainly looking at in excess of INR 1,600 crores. And with the EBITDA margin of -- with -- what was the question on PAT or gross margin?

PAT -- no, no, not gross margin. P-A-T PAT margin.

Right. So as you must have seen in Q2, we have done 11.8%. So we should for the whole year, be able to do around about 10% to 11%.

10% to 11%. And the next question, what will be the return on capital employed and the return on equity?

Yes. ROC has finally come in excess of 15% to 16% after a lull of 4 years, we are very happy about that. I expect it only to go up from here. We will be able to do -- I think our -- at the same CapEx, we should be able to deliver at least twice the amount of international sales. So I'm pretty confident going ahead, this number will only improve from here.

Madam, you're Joint Managing Director, right?

I'm MD. Yes.

MD, okay. What is your qualification?

I'm a pharmacist by profession, and Masters in Pharmaceutical Administration. But my biggest qualification is 28 years of working at Indoco?

I can make out the way you are answering the questions, and you got a good accounting knowledge also.

Thank you. That is not my strength, honestly.

No, but I think -- whatever the thing, but reasonably very good knowledge.

Thank you.

So I thought -- let me be a mix of finance and technical and something like that. So that is why.

The next question is from the line of Vishal Manchanda from Nirmal Bang.

Ma'am could you give a guidance for the U.S. sales this year? So kind of you had an earlier guidance of INR 250 crores, so does that stand?

Yes, yes, we stand by it.

So the run rate should accelerate in subsequent quarters?

Yes, yes, it has to.

Yes, yes it has to accelerate.

The order position is excellent. There has been some concerns on logistics, as we explained, with container availability, some related to material availability, but it will all get sorted out soon.

And so, would this be driven by your existing portfolio largely? Or you are expecting new approvals that's going to drive this number?

Actually existing. As we said, another couple of new product launches, but largely existing.

But most part of it is going to be driven by the existing products?

Yes, yes.

Yes, yes.

And just one more on the EBITDA to operating cash flow conversion, how -- what should we expect there for the year?

EBITDA to cash flow generation?

What was your question?

So what percentage of EBITDA would get converted into operating cash flow?

Operating cash flow. See, we have said that we will end up with a 19.75% EBITDA totally by the end of the year. And we have said that INR 80 crores will go into CapEx. So if you remove that...

And working capital, it should remain flat. Is that what we can assume?

Yes, remain flat. Even the short-term loans are now flattish. They are swinging between INR 105 crores and INR 120 crores short-term loans, so they are well under control.

And just one more on the domestic side. So AIOCD reported growth for the quarter was in excess of 30%, while I think the -- your reported growth is lower.

So there is always something -- there is a small gap between primaries and secondaries. Primaries is what we do internally, secondary is what gets actually sold in the market. And I already answered this earlier, there has been stock depletion actually in the market for us in anti-infectives and respiratory. Q2 has been about actually running to deliver because some of the products have done in excess of twice a thrice amount they had projected. So there is a small gap, but we are very sure there will not be stock outs. And in fact, going ahead, that is very positive for the company. We will be able to sell more.

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

Ma'am a couple of questions on the India business strategy again. So we are launching new products in the pain segment, right? You mentioned diclofenac and paracetamol, large segment, but pretty crowded already with a bunch of incumbent place. When you launch such a product like you are, let's say, the 20th or the 30th brand to be in the market, how do you...

Yes. One correction. We said we launched in our dental -- in our dental division.

The dental division?

No, no. It is more to -- because as we are -- although we are number one with the dentist and stomatological in -- with pain and antibiotics, we are not big. And we could see with the Zerodol in the world, there is an opportunity. So this is more of an opportunistic product. It is not a launch to become big. My bets are more on Noxa, the other launch, which is the Noxa cream, topical cream for impetigo. And there are several products lined up for our acute division coming up, yes.

So my question exactly was that. I don't know Zerodol is prescribed in dental, is it?

Of course, it is. Aceclofenac, very big.

So my question was that if you're going to compete with Zerodol, which is an established incumbent, how do you differentiate your brand for competitors...

Yes, it is not to compete with Zerodol as much as to get a co-prescription.

So this will be a co-prescribing product with the Zerodol. Okay, not really competing with it.

Not for Zerodol with a lot of other products which get prescribed by the dentist. That's it.

Right. But your product is diclofenac, right? Zerodol is Aceclofenac?

That is Aceclofenac, correct.

Second question, ma'am, on the new hires you had announced, I think, 2 quarters back or last quarter, I don't remember. But you had done a few hires in the domestic business, right? I mean some of business talent that you acquired from different pharma companies. How is that team now shaping up? How you see energy in the department internally? Is it now synchronized, harmonized? Or are you still in sort of finding your own place? These people are finding their own places in the organization. If you can talk a little bit about how the new hiring has evolved in the past.

Yes. The restructuring was done primarily to fill the gap of new product launch, identifying molecules early, finding the strategic fit and the whole launch activity and the zeal. Towards that, there is great progress. We have begun well. On the other side, yes, inside the organization, they are settling down. So -- but much of the strategies we have earmarked are more for mid to long term by when I think they're -- for the running business and running sales and the secondary opportunity in the market is more driven by the existing sales employees. So we much give them credit for Q1, Q2, yes.

Last question on the existing employees, the MRs. What is the current attrition?

Attrition is pretty high. Anything between 25% and 30%. There are some regions which are very bad and which are very stable. It's a geographical thing.

Would you care to explain a bit more ma'am?

So if you go to headquarters like Chennai, I think attrition would be in excess of 35% and that's not just for us, but everyone. It's a regional thing. And it is a field where it will move rapidly. We have done a lot of work in that area from induction to recruitment to buddy scheme, referral, lot of new things happening. I'm hoping with the performance coming in this year and especially with acute divisions, close to 90% of people on target, that is one of the best thing that is happened for you towards retention of employees. They earn incentives, they will stay. So this might be a good year for us to correct this.

Because 25% attrition what it implies is that half of your MR strength is actually on the bench, half of them are training and half of them are in notice period. Am I right?

Kind of, but industry is operated like that always.

So other than making sure that they make their incentives any other retention programs? You touched upon a buddy systems, you touched upon -- I'm just worried a growing organization, the retention of talent on the medical representator side tends to be a key performance indicator for the longer term sustainable growth trajectory perspective. So I'm just a little bit worried as to you know, while we are experiencing rapid growth...

Fortunately, for us Aditya, we don't see this really in the established division. So the acute division, the 2 [ dental ] divisions, the turnover is pretty low. It is mostly in the new small divisions, where you know a boy cannot do his target and then he leave. We are working around it some changes have been made in recruitment policies, retention policies, they have a high amount of variable earnings and sometimes you have to look at it in the cities, lot of work being done, I'm confident we will bring this under control.

But any talk about -- bit more about the policies that you're trying to change, what is it that will improve attrition?

Yes, we at Indoco typically a rep was recruited at a starting salary, so mostly a fresher or a one year whatever. So now we have started recruiting experienced representatives in the market. Since we are not adding people, they will be possibly an increase in wage bill, but it will be well absorbed with the sales growth as percentage of sale. So now more concentration on quality of people, return per man, less on how many reps, kind of a thing. And I think post the entire lockdown thing when people were stuck at home and could not meet doctors and the brand still got sold, and strategies got executed, there is a good -- awareness and understanding on how this employee as a resource has to be looked at for India business. We have started within the organization a new cell on SFE or sales force effectiveness. I'm confident with that we will be able to improve retention, bring down attrition. And consequently, we'll get more effectiveness.

Are you personally heading that initiative now?

I'm sorry.

Are you personally heading the SFE initiative?

Yes, yes. I mean, personally, as in through a president level person to whom to this will...

Ma'am what is the regrettable attrition in the MR force and what is the unregrettable attrition? I mean, do you look at it that way? And if you do, can we have some data on that?

I couldn't -- I can't hear you clearly. I'm sorry?

My question is, what is the rate regrettable attrition in the MR force and what is the unregrettable attrition?

A good question, yes, there is -- there are some which are unregrettable, considered how sales promotion employees are classified. There are some who exit because we want them to go. But that is not a very big percentage. I would still want to keep people. A steady team gives you more returns.

The next question is from the line of Dipali from Sameeksha Capital.

So I think most of my questions are already answered. I just wanted to confirm that on neuro we had a guidance of around INR 300 crores for FY '22. Are we seeing -- are we still maintaining the guidance? Or like, are we expecting the growth that we didn't see in quarter 2, to come back in the second half?

Yes, yes. We are maintaining the same guidance.

The next question is from the line of [ Suraj Jain ], individual investor.

Just I want to ask on the borrowings. I can see the financial cost is coming down. And going forward, what are your plans for reducing your debt?

Yes, Suraj, thanks for the question. The first priority will be to pay off the long-term debt. We have a mixed bag of long-term debt. Some is in foreign currency and some in Indian rupees. And the average cost of borrowing stands at around 5.5%. So we will repay the long-term debt. That's the first theme. That is around INR 132 crores. So that's going to take some time to repay.

Any repayment happened in last quarter?

Sorry?

Any repayment happened in last quarter?

Yes, yes. It's a continuous process. In September 2021. We repaid our 2 long term borrowings, one was in British pound, and one was in U.S. dollars. One has been taken for the Patalganga expansion and the other one was for acquiring the plant in Baddi. So those 2 are totally paid off now. And our short-term borrowings are swinging between INR 105 crores to INR 120 crores.

Regarding your current CapEx, as you have already told it is around INR 80 crores and you have already done INR 58 crores, so remaining will be done by internal?

We maintain INR 80 crores only for the remaining part of the year. Total is INR 80 crores CapEx.

Do you have any plan for borrowing?

I think in Q2, we repaid around INR 14 crores worth of -- so if I'm mistaken.

Sorry, go ahead.

The next question is from the line of Kunal from Vallum India.

I just have a single question. I wanted to understand, ma'am, for the contracts, where you have a fixed pricing towards the end customer, for example, the Europe -- the Germany contract. So I wanted to understand, in the next 3 months to 4 months, maybe there would be a rapid increase in the input cost. So would it have a major impact? I mean, I'm sure there would be some impact, but how severe would the impact be on the profitability of these fixed-price contracts where the customer would be not so much willing to negotiate the price on a certain level?

Yes, yes, I think it's a good question, Kunal. For one thing, we are the front end, so to that extent, currently, we had a fixed price to pay to the distribution company, and majority of the profits remain in Indoco, so if we were the back end, the front end customer was paying us practically nothing. 4 years, 5 years back, we had those kind of supplies. But today in a far, far better position. And I agreed with you, what you said is the input costs are rising. So we are continuously taking stock of the situation and in what way we can handle this. But we expect from January onwards, these costs to neutralize slowly over a period of time. So yes, for 3 months to 4 months, we have been bearing the brunt.

Sir, for contracts like the Germany tender which we have got, which I'm sure would be a fixed price. So there are in such contracts, I mean, how -- so would that be big reduction in the margin, which would get to on because the COGS for these would shoot up very rapidly in these sorts of contract?

No, no, there won't be a major impact, but there will be an impact.

The next question is from the line of Ms. Cyndrella Carvalho.

Ma'am just want to hear if we have heard anything from U.S. FDA since we are hearing a lot of inspections now happening. Any update on any of our facility that you could share with us?

No, sadly not yet. We are waiting eagerly.

The next question is ma'am, how do you see the current domestic acute recovery. What is your sense for us on our basket as well as on the industry, if you can help us with your view, how do you see it going ahead next second half? How does this look in your view?

So, typically, the Indian pharma market seems to be stabilizing now and coming to some kind of predictability of performance -- a higher single-digit growth across most therapies, some double-digit. Coming to us, we had some products which were more severely impacted than most of the companies, couple of antibiotics, specifically the [ SEP ] products and brand, which did very badly last year because everyone was home, everyone has masked up, no upper respiratory tract infection. So specifically, our product basket, the Oxipod and Bactogard, we have 2 brands, they had a lot of sort of margin to make up, and therefore, they've done exceedingly well. We are also very fortunate that we have ATM, Azithromycin, which in Q1 got the upside of the third wave and in Q2 got the season and sort of post-COVID kind of secondary infection treatment option its considered. So in that manner, anti-infective for us in our portfolio continue to stay very robust. And I'm therefore, very confident that despite covered market because we have such a high level of contribution coming from antibiotics, we will do well.

And ma'am, on the industry, per se, any sense for the second half?

Industry, again, the acute segments are doing well. I think Chronic is still is pretty muted. But industry is gradually coming back to, like I said, a respectable excess of 6%, 7% growth per month, which is good. Some months because the base would be very bad from last year, so we have to keep going back and doing the base correction. But otherwise, good predictability coming into the industry now for growth.

I will now hand the conference over to the management for closing comments.

Yes. Thank you all the participants, and the organizers for this very fruitful discussion. I wish all of you and your families are very Happy Diwali. Stay safe, stay healthy. Thank you.

Thank you very much. On behalf of Centrum Broking Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.

Thank you.