Indoco Remedies Limited (INDOCO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day. And welcome to Q3 FY '24 Earnings Conference Call of Indoco Remedies Limited, hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Rashmi Shetty from Dolat Capital. Thank you. And over to you, ma'am.

Thank you, Manav. Good afternoon, everyone. I, Rashmi Shetty, on behalf of Dolat Capital, welcome you all to the Q3 FY '24 Earnings Con Call of Indoco Remedies. I would like to thank the management of Indoco Remedies for giving us this opportunity to host the call. Today, from the management, we have with us Ms. Aditi Panandikar, Managing Director; Mr. Sundeep Bambolkar, Joint MD; and Mr. Pramod Ghorpade, CFO. I now hand over the call to the management for their opening remarks. Over to you, sir.

Thank you, Rashmi. Good afternoon, everyone. I'm Pramod Ghorpade. Thank you all for joining this call today. Let me draw your attention to the fact that on this call our discussion will include certain forward-looking statements which are projections or estimates about our future events. These estimates reflect the management's current expectations of the future performance of the company. Please note that these estimates involve several risks and uncertainties that could cause our actual results to differ materially from what is expressed or implied. Indoco does not undertake any obligation to publicly update any forward-looking statements whether as a result of new confirmation, future events or otherwise. Now I will hand over the mic to our Managing Director, Ms. Aditi Panandikar, for her opening comments.

Thank you, Pramod. And thank you, everyone, for joining us this afternoon. Today's business environment is very dynamic. Factors such as geopolitical stability and global warming have started affecting businesses across the globe. In India too, we have felt the impacts of the respiratory season not coming in, for example. In such a dynamic environment, team Indoco is firmly committed towards its growth prospects. Our team is committed and motivated to achieve the long-term objectives of the organization. I would begin by wanting to share some key business highlights of the organization. In this quarter, we received the tentative ANDA approval for canagliflozin, the SGLT2 inhibitor, 100 mg and 300 mg tablets, from the U.S. FDA. Our Goa Plant I also received the EIR from U.S. FDA for a pre-approval inspection that had been conducted at the site earlier. Indoco Analytical Solutions, our service business, has been awarded with the prestigious best customer service provider in pharma and health care award at the second edition of pharma and health tech summit and awards in 2023, in recognition of setting new standards within the industry, dedication to understanding the unique needs of each client and attention to detail and willingness to go the extra mile in their field [ of expertise ]. In the domestic market, subsequent to successful launch of [ Biltal M ] [indiscernible] and montelukast combination tablet [indiscernible] [ Biltal M ] suspension was also introduced in this quarter. We also introduced a product, [ Lygylac ], under the vitamins, minerals and nutrition segment in the Indian market. Indoco also received the prestigious SAP ACE award 2023 in the game changer category, awarded by the INDUS SAP community and the SAP India in recognition of Indoco's outstanding achievements in its digital transformation journey. The organization continues its IT-enabled projects in the field of operations, human resource management and regulatory and quality areas. Indoco has successfully been pursuing its process development initiatives, expansions programs on scheduled time; and is focused on ANDA filing process. We continue to be on the growth trajectory and are aimed at achieving our set targets. That is all from me. I will now hand over to Mr. Sundeep to share the financial highlights.

Thank you, Aditi. Good afternoon, everyone. Hope you all are doing fine. Let me first begin with the financial highlights. Net revenues of the company for the third quarter FY '23, '24 grew by 9.2% at INR 4,484 million compared to INR 4,106 million for the same quarter last year. For the nine months ended December '23, revenues grew by 9.6% at INR 13,268 million, as against INR 12,101 million for the same period last year. EBITDA-to-net sales for the quarter is 14.6% compared to 15%. EBITDA-to-net sales for the 9 months ended is 15.1% compared to 18.2%. Profit after tax, before exceptional items, to net sales for the quarter is 6.3% at INR 282 million compared to 6.8% at INR 279 million for the same quarter last year. Profit after tax, before exceptional items, to net sales for the 9-month period is 6.6% at INR 873 million compared to 9.6% at INR 1,160 million. Earnings per share for the quarter is INR 2.17 compared to INR 3.02. Earning per share for the year-to-date is INR 8.57 compared to INR 12.59 for the same period last year. Above numbers are on stand-alone basis. We have declared results with consolidation which include results of our subsidiaries. Domestic formulation business. Revenues from domestic formulation business for the quarter grew by 4.4% at INR 2,126 million, as compared to INR 2,036 million for the same quarter last year. Major therapeutic segments, namely cardiology, urology, stomatology, ophthalmology and vitamins, performed well during the quarter, as compared to the same quarter last year. Now on the international formulation business front. Revenues from international formulation business witnessed growth of 4.6% at INR 1,947 million compared to INR 1,861 million. Revenues from regulated markets for the quarter degrew by 2.8% at INR 1,475 million, as against INR 1,517 million. Revenues from U.S. business for the quarter grew by 43.2% at INR 863 million, as against INR 603 million. Revenues from Europe for the quarter are at INR 582 million and have degrown, as against INR 860 million. Revenues from South Africa, Australia and New Zealand are at INR 30 million compared to INR 54 million. Revenues from emerging markets for the quarter grew by 37.3% at INR 472 million, as against INR 344 million. Revenues from API business for the quarter grew by 105% at INR 333 million, as against INR 162 million. Revenues from AnaCipher CRO and Indoco Analytical Solutions for the quarter grew by 70% at INR 78 million, against INR 46 million. That's all about the highlights for this quarter. I now request participants to put forth their questions. Thank you -- hello. Rashmi?

Yes, sir...

Hello [indiscernible]. Hello [indiscernible].

Can you hear us?

Yes, sir. You are audible.

Okay.

[indiscernible].

Rashmi, you are -- on call?

Hello.

[ Rashmi ].

Yes. Can you start -- moderator, can you start the Q&A session?

[Operator Instructions] The first question is from the line of [ Sudarshan from JMP Mutual Funds ].

[indiscernible] JMP MF, yes. Sir, I would like to understand the update on the Goa II plant. I mean the Goa I plant has seen some kind of positive development. So when is the inspection expected? And what is your outlook on the [ Goa I ]?

Yes. So we haven't received any further updates from the FDA regarding the exact dates for audit, et cetera. As soon as we hear it, I think, if it is a preannounced inspection, you will hear about it too.

Okay. I mean with respect to the costs in the fourth quarter. Was there a sizable remediation cost that was there in the fourth quarter? I mean some color on how do we expect the remediation costs as we move towards FY '25.

So I think I said it in the last call also that, for 2 to 3 quarters, we are expecting similar levels of remediation costs. And this quarter is where we have had similar remediation costs. That is the expenditure on the remediation partner as well as on certain other improvements that we have to do at the site to meet up with the FDA expectations. And I expect a similar level of cost structure even in the next quarter.

Sure, ma'am. And with respect to the U.S. business in the third quarter, I mean, have you seen any profit [ booking ] from the brinzolamide? Or is the component being lower in this quarter?

So we have -- we -- as a basket, we have profit share across a lot of products, so there is a good improvement in total profit share earned for this quarter, not specifically just coming from brinzolamide.

And should this be right that, the fourth quarter, if you're looking at it, we had earlier embarked with a 300 crore kind of target. Are we on course with that? Or is there any change to that? And some color on how we expect FY '25 and '26 to be, ma'am.

As we said, futuristic statements, not everything is in our control. Geopolitics is playing a huge spoilsport, but still we are trying our best. Last year, we had done 266 crores, and this year, we will end up very close to the figure you mentioned.

Sure. And on the European business. I mean we have seen this declining sharply. One is, is there any specific product? Or is there any specific reason, or is it something to do with the Red Sea? I mean, how do you see this development with respect to the Red Sea affecting this part of the business and other export [ geographies ]?

Yes. So this quarter's performance does not yet have any impact of the Red Sea issues. I think the Europe picture that you are seeing is largely an impact of paracetamol from one customer order's steady state not coming in, possibly because they are overstocked. I don't see anything else. Given about the future and how the Red Sea matter will impact us or not, our logistics team is trying very hard to bring down the impact it will add to us, but we'll have to wait and see.

Sure, ma'am. And on the -- as you mentioned, on the remediation costs and we still are a little uncertain on Red Sea. I mean the transportation costs are more than double there. How do we see the margins panning out? Because one is you have a cost that is being built. The second is a lot of our facilities are underutilized and there can be a lot more operating leverage that can come even from the domestic business. So if you can give some color with respect to your aspiration in the medium term and the long term, as far as margins are concerned.

So we have kept our Goa sites for U.S. sales. And amongst those plants, plant 2 as such is running at good capacity utilization with the ophthalmics and injectables. And given the Red Sea matter, I don't think the sales could get impacted too much. You just have to look at the additional freight cost, if anything, and then consider margin. So I don't think your concerns are going to result into underutilization of capacity in any way. On plant 1, which is a solid orals site, today, we have some business for U.S. which is really small, but there was a VAI which was successful; and we hope to get more approvals going forward. We also continue to make certain amount of Europe supply from this site. And more importantly, as you know, we also have a very solid India business, so we are looking at, as and when required, we can always bring in that production, so I don't think that capacity not getting utilized will impact us. Having said that, there is a high level of -- efforts at the highest levels are on across all sites to bring down operational costs. And you might have seen in these results we've talked of an exceptional item of about 8 crore, which is what we have incurred towards a VRS at one of our sites in Goa. So we are looking overall at bringing down cost of operations also. Coming to the Baddi site. This has now got all European approvals. And except for one paracetamol which against the expected forecast hasn't done up to expectation, other products at Baddi are doing decently all right, so we have to wait and see. So unless the solid orals to U.S. get impacted because of freight issues and that creates some kind of margin pressure, all of that, how it impacts us, we have to wait and see. As of now majority of our exports to U.S. in particular are going from plant 2. And they are the lightweight small-volume ophthal and injectable products.

[ Sure, ma'am ]. And definitely on the margin side specifically, I mean from the current level even if I exclude the 8 crores, I mean, the numbers do not necessarily reflect the kind of strength that you have on the domestic side. I mean -- and probably a little bit [ colored ] on the export side because of the remediation costs. So what is it that one should realistically expect, say -- I'm just -- I'm not looking at, say, the next quarter or so but, say, as you start ramping up on both sides of the business.

Yes. So as I always say, India business is about primaries, but the real health of your demand for your products is of performance on secondaries. So secondary performance is reflected by what you see in the maybe AWACS, IQVIA numbers. So happy to share that, if you look at our performance for Q3 as per AWACS, then against the covered market growth of 8%, we are actually growing at 12.8% this quarter. That shows very healthy demand for our products. Coming to internal numbers on India business that you see, there is an element of institutional business in it as well, which is a tender business which is quite fluctuating. So because of some base effect of that and the performance of institutional business same quarter last year, you see India business down to 4.5%, but it is more realistically like a 6% growth. And as per IQVIA, our covered markets have also grown at 7% in this period, so we are matching market growth at this stage. We are acute-heavy organization. And this year, most of the acute therapies, steam inhalation and some respiratory products have not done very well. So we have seen that impact, but some of our products are doing very well. Cyclopam has grown at 10%. You see Sensodent KF growing at 18%. You see some of the other categories also. I think Oxipod has done very well as an antibiotic. A lot of work going on in the company, as you rightly said, to see that we get -- we can leverage our excellent portfolio of products. We are also in the process of weeding out the tail, as we call it. So while on one side new launches have started doing very well in the company, we are still weeding out a whole lot of many, many, many small products; and impact of that does come on the total sales and eventually hurts the margin. This process is likely to go on, I think, for another quarter, after which we should be seeing a more correct picture of the operational health of the India business.

Sure. And what is your outlook for the API business? Do you think the high base would have an impact on the growth next year?

Not really. It really isn't very big. Even at the current numbers where we have done very well, we are quite small in the API space compared to many of the other players. What has changed for us in API is, while 2 years ago 60% of the capacity of APIs was consumed by internal business -- international formulation business, I think now it is down to 30%, [ this ] consumption. So we are able to sell more outside and build a much better client base. And there are plans to take this forward, so API business will continue to ramp up in the coming years.

Sure. And a couple of bookkeeping questions before I join back is on the depreciation side. Has there been a difference in the depreciation rate or something? Because there seems to be an increase there. And also some color on the tax: What can one expect on the tax rate side?

[ Mr. Sudarshan ]. Pramod here. So on depreciation, depreciation includes amortization also. So one is the incremental depreciation on the fixed assets which we capitalized during last 3 quarters. And second is certain amortization of ANDAs cost. So these are the incremental impact on depreciation. Your second question, about the tax: Tax, as you know, we are at a concessional rate of 25%. And this effective tax is including deferred tax impact, deferred tax assets and liability; and change in that impacting the overall tax -- effective tax rate for the quarter.

And what should we expect going forward? I mean, should it normalize?

Depreciation...

No. I'm talking about tax rates.

Tax rates will be in the normal [ tax rate ]...

[indiscernible].

Yes, yes, of course.

[Operator Instructions] We have our next question from the line of Ankeet Pandya from InCred Asset Management.

Ma'am, just 2, 3 questions. So starting from other -- on the other expenses side. So sequentially, there has been some decline in other expense from 145 crores to 140 crores. And you had -- I -- if I'm not mistaken, you had earlier guided that the remediation cost is expected to come down by Q3. And you just mentioned also that in Q4 we will be at a similar run rate, so like should we expect around a 140 crore run rate, quarterly run rate? Or due to remediation costs coming down, that can see some benefit in other expenses.

So as you rightly said, other expenses overall have come down, but that is because of a lot of effort from the organization side on controlling and optimizing resources. Coming to your question on remediation costs, I don't know whether I specifically said, from next quarter, it will come down. I had, in fact, said that, for a couple of more quarters, we are likely to see the same level of remediation costs, but despite these remediation costs being similar, I'm pretty confident that overall, other expenses, we'll be able to keep bringing them down over time.

Okay. Fair enough. Secondly, ma'am, on your U.K. Europe business. So how should we see next 2, 3 quarter ramping up given that current challenges are there in -- or regarding paracetamol and overstocking? So like when should we see quarterly growth coming back in this particular region?

Yes, Ankeet. This has been happening for the last 4, 5 months, so we expect things to turn around from next month onwards. That's point number one. And secondly, from April, May, we have some other products also which we are likely to get approved. So there is a definite plan in place, so you will have to wait for 2 months. That is this quarter. And from April onwards, you will see a turnaround.

Okay. And any tenders that we will be applying or we have applied? And any tenders that we'll be bidding? Any update on that?

No, nothing fresh.

Okay. Just -- and the last, my last question, on the domestic business. The -- from the previous participant, you mentioned that we are weeding out some smaller products in the domestic business, so what kind of -- like directionally if it's possible to give out some number if you can see that what kind of impact it is having on the growth front. So should that -- we can get some clarity like what to -- projects -- going forward, what we can expect from Indoco.

So as I said, our legacy brands and the other products which are well established in acute therapy, they have not really grown quarter -- or Y-o-Y for this quarter, but our new introductions have done very well. So we've done 2x the top line that we could have done from new introductions same time last year, but some of this has got eroded because of the tail getting wound up. This is what I meant. Otherwise, it would have all come down in sales growth. The tail winding up, it's like if you break them down to SKUs and all. We are looking at 150-plus small, small, small products launched over many number of years existing in pockets here and there. There is a huge cleanup operation going on for -- to weed out these kind of products because, while they help an [ FFO or an HQ ] do their target here and there, they really don't help us strategically in any way for the corporate -- the manner in which we want to grow. So we are putting a stop to many of these, and that results in certain amount of rollback. So this quarter, if I'm not mistaken, we must have got around 7 crore additional from new products and we must have lost close to 3 crore to 4 crore. This is my estimate. That's what I meant. So once this washout is over, all the incremental sales coming from new introductions can straightaway contribute to growth. Clear?

Will it be largely offset by new launches? The weeding out of smaller brands, that will be partially offset with the new launches.

Yes. So I mean, in addition to everything else, I cannot ignore the fact that Febrex Plus has degrown by 3.5%. So when your second largest brand degrows -- and I would like to add here solid orals, that is Febrex Plus tablets, are actually in growth. We have had an issue with only one SKU, which is the liquid orals, but we had quite a large presence there. So that is one big -- it is the second largest brand of the company, so we have got impacted. Otherwise, if you look at many of the other brands, we are doing very well.

[Operator Instructions] We have our next question from the line of [ Mr. Raj from Arjav Partners ].

Am I audible?

Yes, sir.

I wanted to know the outlook for FY '25.

Yes. So [ Raj ], we are not really giving any guidance. Looking at current performance, you will agree that, from whatever you heard from us, we are very confident that there are several improvement initiatives going on across the organization to bring in more efficiency or to sort of increase batch sizes, to look at product portfolios, weed out products which are not in growth segments. All of this is going to result definitely in good margin expansion going forward. And the efforts put in by sales both in India business as well as U.S. and, for that matter, even emerging is going to give us good improvement in top line as well. This is just a phase we are going through and I would like to desist giving any guidance at this stage.

[Operator Instructions] We have our next question from the line of V.P. Rajesh from Banyan Capital.

Just one clarification, when you were talking about the products that you are weeding out. Will that impact -- get over in this year, or will it continue in financial '25 as well?

No, no. It should get over this year. It should get over this year, right?

Okay. So in terms of the fiscal '25, is it fair to say that you would have a very clean base to grow from in the domestic business?

Yes, that's true.

Okay. And then typically when we see the external data that you were earlier referring to, that is growing around, I think -- you can correct me if I'm wrong, but in high single digits, so do we aspire to grow more than that? And if you can just tell us it will be 1.5x the industry growth or 2x, that would be sort of helpful.

So as per AWACS, our covered market is growing at 8% for the quarter and we are growing at 12.8%. As per IQVIA, our covered market is growing at 7% and we are growing at 3% or something like that. That is the only difference. I don't think we get much influenced by what is happening outside. It is important to concentrate on our portfolio and see how it can be growing. This -- we have had 4 categories which have been frontrunners in contribution to total sales in India business. One is anti-infectives. The second is stomatological. Third is GI, and fourth is your respiratory. Now this year, our respiratory has taken a major hit. The respiratory market in which we operate, which is Febrex Plus which is anti-cold, we are seeing patients sort of move more towards plain paracetamol or anti-allergic products, antihistaminic products. And post COVID, in the stabilization kind of thing that's going on, there is some kind of correction we are seeing in the consumption pattern of these products. We're watching it very carefully. You will see our own new launches are directed to take advantage of this shift. So we have an antihistaminic [ Biltal M ], which is a combination of bilastine and montelukast. We have a peripherally acting cough syrup, "peripherally acting on CNS" cough syrup, Dropizin. Both these products are expected to get, take advantage of the shifting markets, if at all, but I'm pretty confident that with a normal rainfall -- because we have had the El Niño effect this year. So with a normal rainfall, there is no reason why even Febrex Plus will not be able to do well again. The entire category has not done well. In antibiotics, there are a few antibiotics which are doing all right for us. Cefpodoxime, the anti-infective in which we have a very large brand, Oxipod, has done well this quarter finally after the lull period in the first half. So that is where our products are. And I feel pretty confident that, the kind of strategizing we are now doing, the kind of new products we are choosing to launch, for us, in the -- soon, we will be able to see the real impact of this coming into our top line growth.

Got it. That's very helpful. And just a question on the margin side. At the company level, the margins have been continuously coming down over the last few quarters. So if you -- can you attribute what is going because of the remediation costs? What is because of your gross margin? And what is because of other things? Can you quantify that?

Yes. So if you look -- good question, and thank you for asking that. So if you talk of gross margins and you actually start looking at the COGS, then over the last 6 quarters, I think this is the best cost of goods we have delivered. Material cost as a percentage to sales this quarter is at 30.5. So a year ago, we were looking at about 31...

[indiscernible].

Yes, 31.7, something like that, so there has been good improvement there. On employee benefit expenses, we are a little bit high this quarter and largely on account of that extraordinary item, that too. So the kind of expenses which are not of a repetitive kind but are likely to last 1 more quarter are really the ones we've been discussing. That is the remediation costs for the work we have to do at plant 2 to -- for FDA to walk in and clear us completely. Those are a little bit on the higher side. Other than that, I don't see anything. There are some amount of sales promotion expenses also which we have made a little bit on the higher side this quarter. They will also stay for the next quarter. These are costs we have used for digital sales and -- or digital marketing of our products for the D2C model, so we will see an impact of sales growth coming from that in another couple of quarters.

And what was this one-off cost that you just discussed in this quarter?

So we had given a voluntary retirement, offered a VRS scheme at one of our plants in Goa. And some of the older operators who were with us for a very long time, they have chosen to take that. And we feel this is very good, and we should be able to recover the impact of this in 2 years time.

Okay, but if you think of the one-off costs this quarter, let's just say VRS plus remediation, plus whatever else was one-off, what is the total number?

Yes. So we are roughly looking at around 13 crore to 15 crore.

[Operator Instructions] We have our next question from the line of [ Prolin ], an individual investor.

Aditi, ma'am, I have been listening to your call for quite some time now, quite a few quarters. Just 15 months back, you came in one of the conferences and you said that you have a target of increasing the size of the business by 3x in the next 5 years. Now multiple times, you have refrained from giving the guidance, right, but if I look at what has happened in the last 15 months, there have been a couple of OAIs in our Goa facility plant 2 and plant 3. And Europe also is going through destocking. Our domestic acute business is going through its own headwinds. So just wanted to understand that -- from when can all these -- some of the external factors cease to exist, right, and we can be on our -- that long-term trajectory of growing by 3x in the next 5 years?

Yes. So obviously, I cannot comment on external factors not existing, but I can definitely tell you what we are doing to ensure that they don't continue to impact us like this. So like I said earlier, portfolio -- product portfolios are being looked at in the international markets also. Even in the contract manufacturing markets to Europe, the product mix is being looked at. And even for the product mix, we have a very ambitious plan to bring down costs of operations so that efficiency comes in. That is underway, so there are a lot of things underway. In the India business, one of the areas identified is that we are pretty much a rural-strong company and we need to increase our metro presence. Internationally, in U.S., as a business, we need to ensure that product sales happen at the right time. And all the investments we make in operations, therefore, get a turnaround correctly, for which, FPP, we acquired that company so that we are in control of the fortunes of the products. So the investment in front end in U.S. has been done. Across 3 manufacturing sites, efficiency-related corrections are underway in operations, everything, like I said, increase in batch size, AI-driven efficiency improvement, reduction in the number of employment costs or staff costs to sales. All those parameters are being considered. On the India business side, an effort to increase the per-man return is continuously on. By launching new products which are in high-growth segments, [ we'll be able to risk ] ourselves from these kind of impacts that we get when a season doesn't come in, et cetera. That is underway. So a lot of things underway, it is going to take us a little bit of time to be able to show you outcomes of these coming in. I'm hoping, sooner than later, you will be able to see small improvements both in top line and bottom line coming from this.

But ma'am, just to give the -- just to, I mean, push you for a time line wherein all these internal factors that we can control would be something we have done. Is it like a 2-, 3-quarter thing? Or is it going to be a 2-, 3-year thing? What is your sense, ma'am, the internal factors...

Yes, yes -- I'm sorry. I didn't get your name.

This is [ Prolin ] here, ma'am, [ Prolin ].

[ Prolin ]. So [ Prolin ], I have been advised that I've been giving off too many guidances, which have put -- I put my foot in my mouth, so as to say, so I'm extremely careful going forward about any numbers. I think you must have heard what I said. You can do the math that, on one side, we are bringing down cost of operations. On the other side, we are correcting our product portfolios. All of these, frankly, when it hits the numbers, we will do a good job. I cannot put a number, give you an -- exact times line on it. We've already told you the one-off costs in other expenses, for how long more. Probably, 1 more quarter, we'll have them. In the new year, we should be done with many of these other things which impact us, and by then, sales growth will also start coming in.

That's great, ma'am. And I mean, are such other VRS plans also in pipeline? Because, ma'am, I'll tell you where I'm coming from, right? I -- with your experience, ma'am, if I come to you and tell you that there is one company which is like 20th rank on IQVIA and 30th rank -- or 20th rank on prescriptions -- they do 70% gross margin kind of a thing, right, in some sense. Without knowing the name, you will say that approximately the margin should be anywhere close to 23%, 25%, right, in some sense with a 70% kind of a gross margin, so I mean, is it fair that, given the quality of our business -- and I know in the past you have said that U.S. business is higher margin than our domestic business as well, so is there a -- I mean just like your aspiration in terms of growth. Is 23%, 25% a good number given the quality of business that we are sitting on?

Of course, it's a good number. We had come very close to 21.5% at one point, I think, 1.5 years ago.

Yes.

Exactly first quarter FY '22, okay?

Right, right, right.

[Operator Instructions] We have our next question from the line of Ankeet Pandya from InCred Asset Management.

Ma'am, just one question. In the domestic business, you have mentioned that there's some element of institutional business also which is very fluctuating. So what will be the contribution from this segment?

I'll just quickly look at it. It's not very significant, but I think it has done very well last year, at this point.

Like mid-single digit 5% to 6% contribution to domestic business...

Not really. I think, this quarter, we have done close to 12 crore from institutional.

[indiscernible].

And it was at 14.5 crore same period last year, okay, so showing a 20% dip on a small base.

Okay. And this will be mainly towards hospitals...

No. These are -- we don't cover private hospitals and all. These are typically your [ AFMC, ESIC ], railways, those kind of institutions.

Okay, but overall it will be less than 10% contribution to the domestic...

Yes, yes, yes, very less.

[Operator Instructions] We have our next question from the line of Candice Pereira from Dolat Capital.

So on the U.S. So with the Goa Plant II under the -- under issue and the ramp-up in Goa I, what do we expect FY '25 to be like for the U.S. business? And how many products are we planning on launching from Goa Plant I?

So plant 2 does not have any issues. I just want to clarify that. It is just a classification, okay? So we are waiting to go back to our VAI classification. That's all. Other than impact certain product approvals, as in they might get delayed, there is no problem for existing business from Goa Plant II. And Goa Plant I ramp-up, what I said earlier is, the VAIs having been cleared, we are likely to get more approvals soon, okay? So possibly, in a years time, I think we can expect 2 to 3 approvals for U.S.

[ Yes ], [indiscernible].

Okay. And have we started transferring the products from Goa I to Baddi III for EU markets?

Yes, yes. Also, about the U.S. business, you're right. We have ramped up the capacity in Goa I., so supplies will be much smoother. Batch sizes have been increased for some of our products. And naturally, the cost of manufacturing will come down and margins will go up.

Okay. That is very helpful. And for the domestic business, how many total MRs do we have right now?

On payroll, 2,300.

2,300, all right. And ma'am, the CapEx for this whole year, what do you think it will be; and the allocation of it?

150 crore...

150 crore is the CapEx expected.

Okay, 150 crores for FY '24. And FY '25, ma'am, if you would give guidance.

Similar levels. It might be less than that.

Slightly lower, yes.

Okay, slightly lower, all right, yes. I think that's all from my -- sorry. And one more thing: So our covered market share in the domestic market, ma'am, you said was around 8%, right, in -- as per AWACS.

No, no. That -- we are -- not growth, not market share. Market share is 0.7%.

Sorry...

Market share is 0.7%. 8% was covered market growth.

Okay, all right, okay.

We have our next question from the line of V.P. Rajesh from Banyan Capital.

So the Goa Plant II, by when do you expect to get the VAI status?

Like I said, we have not heard anything further from FDA, but there is a time -- they have given us to make certain corrections inside the site, like some area corrections, et cetera, for which we are working on, so it is expected that, once that is concluded, they will come in. So probably in the second half of next year.

Second half of next year, okay. So essentially, Q3 is the earliest you could get that clearance, right?

Yes, we can't really say, but at this stage, we should [ expect that ].

Tentative...

Tentatively, yes, of course, yes. And on the international business size -- side, if you can just quantify as to what is your total potential, given your capacities, et cetera and the products that you have, so that we can understand. How much is the gap between what you are generating in terms of revenue versus what the company could do in the international market given your American formulation business plus the APIs over there, plus the formulations in EU? So just wanted to get a sense of that.

Yes, yes. Thank you, Rajesh. See. It's like this, that for European business, as I said earlier, we have filed many products which are of much higher value and much, much better margins. It's just that the agencies are working at their own pace, no doubt they're trying very hard to give the approvals, but post COVID, things have really slowed down because of they're hiring fresh staff and all that. So once those approvals start coming in from April, May of this year, we could start slowly sharing how much paracetamol we do or some other low-margin business. And that would add to the top and the bottom line both and simultaneously scale up our U.S. solid dosage business. So as far as capacity is concerned, I'm not at all worried because we are upgrading all the important machines. We are going for the best in class, so that will generate huge capacity, in fact, in Goa I, Goa III, Baddi I, Baddi III. So Baddi will entirely handle Europe and Goa will handle U.S. So that clarity is there. So the capacity will not stand in between our success to do more and more, that much I can assure you.

Right. My -- I get that, and my question was slightly different. So given the capacities that we have, given the products we have and the markets we are targeting, what is the potential revenue that you can see? If everything is aligned correctly, what kind of revenue can you generate from these capacities?

Yes. So I'll just answer that in a little different way. For the quarter completed now, if you see, we have done around 60 crore from Europe. And 90% of that is against contract manufacturing for others. The U.S. revenues, meanwhile, even if they are contract manufacturing, have a profit share attached to it. Or we are sort of part of the pipeline selection and it's part of our strategy. So quite frankly, given that every contract manufacturing unit can be converted into manufacturing own strategically selected product at the correct margins, where you are also participating front end in sales so it is not cost-plus, et cetera, et cetera, actually this capacity can give us anywhere from 2.5 to 3x the top line.

2.5 to 3x of what you did in this quarter, right, Europe and the U.S. put together.

What we do on average basis at a max level, yes, annual level.

I see. So if I just look at your 9-month revenues and annualize that, you're saying you could do 2.5 to 3x to that number. Is that a fair understanding?

Yes, easily.

Correct.

Okay. And as you have said in the past, your margins are much higher in the international business, so can we assume that you can -- at that kind of revenue potential, you'll be making 20% EBITDA margin?

I didn't get the last part of your...

So given that margins are higher in the U.S. and Europe and the products that you have there, is it fair to assume that you can do 20% kind of EBITDA margin in those geographies once everything is aligned and executing properly?

Yes, once aligned and executed, certainly.

That was the last question. I would now like to hand the conference over to the management for closing comments. Over to you.

Thank you, everybody, for your active participation and your questions. Look forward to better performance in the quarters to come. Thank you.

This has been one of the most well-participated call, I would rate it. Thanks a lot for your participation. Thank you.

Thank you.

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