Ipca Laboratories Limited (IPCALAB) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Ipca Laboratories Q4 and FY '20 Earnings Conference Call hosted by IDFC Securities. [Operator Instructions] Please note this conference is being recorded. I now hand the conference over to Mr. Nitin Agarwal of IDFC Securities. Thank you. And over to you, sir.

Thanks, Vikram. Hi. Good morning, everyone, and a very warm welcome to Ipca Labs Q4 FY '20 and full year FY '20 earnings call hosted by IDFC Securities. On the call today, we have, representing Ipca management, Mr. A. K Jain, Joint Managing Director; and Mr. Harish Kamath, Senior Corporate Counsel. I hand over the call to the management for opening comments, and we'll open the floor for question and answers later. Thank you. Please go ahead, sir.

Thanks, Nitin. Good afternoon. Thanks for taking out time and joining us for Q4 and FY '20 results conference call. Today's discussion may include some forward-looking statements that must be viewed in conjunction with risks that our business faces. I will briefly touch upon some of the key performance highlights and then leave floor open for question and answers. Q4 and FY '20 has been strong for the company. Stand-alone net profit has -- income has gone up by around 20% to around INR 1,018 crores, and consolidated net income is up around 22% to around INR 1,087.49 crores. Indian formulations business in Q4 has grown by around 21% to around INR 430.96 crores. Export income during the fourth quarter was almost around 18% up to around INR 492.66 crores. Stand-alone EBITDA margin was around 22.29% as against 21.2%. It's up by around 1.08%. And consolidated EBITDA margin is also up by around 1.38% overall. And if you look at the key highlights of the financial year 2020, stand-alone income is up by around 20% to around INR 4,432 crores. Consolidated net income is up 23% to INR 4,715 crores. Indian formulations overall income has gone up by around 16% to around INR 1,916.61 crore (sic) [ INR 1,912.61 crore ]. And exports income -- exports have been very strong, around 24% up to around INR 2,143 crores. Stand-alone EBITDA numbers is up to around 22.41% in FY '20 as against 20.75%. So it's up by almost around 1.66%. And consolidated EBITDA number is around 21.55% as against 20.05%. So it's up by around 1.5% overall. And overall stand-alone net profit is at around INR 652.46 crores and consolidated net number is around INR 603.56 crores. This is also up by almost around 36% overall. And if you look at overall turnover breakups, domestic business is around INR 431 crores as against INR 355.7 crores in last financial year. Export of formulations, if you look at, it's around INR 282.47 crores as against INR 253.6 crore in the last financial year. And overall formulations business in Q4 is around INR 713.43 crores as against INR 609.3 crores. So overall formulations income in Q4 is up by around 17%. API has done well. It's almost around INR 275 crores as against INR 211 crores, up by 30%, and overall is up by almost around INR 1,004 crores as against INR 833 crores. API is constituting almost around 27.38% of the business in the fourth quarter as against 25.38%, which we had last year. And therefore, overall, the pie of API has gone up in this quarter by almost around 2%. If you look at the stand-alone number for the whole of the financial year, then -- FY '20, the overall domestic income is around INR 1,912 crores as against INR 1,646 crores in last financial year, up by around 16%. Export formulations is around INR 1,221 crore as against INR 1,048 crores. And overall formulations business is around INR 3,134 crores as against INR 2,695 crores. It's up by around -- almost around 16%. API business is -- domestic business is up by around 24%. Export business is up by 35%. Overall API business we have done is around INR 1,173 crores as against around INR 885 crore in the last financial year. And overall business number is around INR 4,367 crores as against INR 3,633 crore. So API business has accounted for almost around 26.86% to the overall turnover, which was last year around 24.35%. And so overall, in pie, API business has gone up by almost around 2.51%. And overall, if you look at our captive-backed formulation business, we have done a captive-backed API for our formulations business of around INR 1,728.35 crore in current financial year, which is accounting for almost around 55% of our business, which was last year around INR 1,454.58 crore. So that was around 54%. So 1% business of the captive API-based formulations has gone up in this particular financial year. Overall, if you look at our stand-alone gross profit for the quarter and for the financial year, the gross profit compared to last financial year fourth quarter has gone down by almost around 0.41%. And for the whole of the financial year, it is down by around 1.96%. And this has been mainly because of input cost increase during the financial year and also higher ratio of API business in the overall business pie. But there has been good improvement in the fourth quarter as against -- 1.96% EBITDA -- gross margin, which was down in -- for whole of the financial year. In Q4, it is only 0.41%. Overall, summing up the performance for FY '20, I would like to say that our focus has been on improving productivity and utilization of assets and brand-building. Our net asset turnover ratio has improved to around 2.3% as against 2.04% in the last financial year. If you look at our return on capital employed, has improved on a stand-alone basis to around 20.2% as against 16.31% in last financial year. And if you look at our consolidated -- the return on investment, it's almost around -- return on capital employed, it's around 19.63% as against 16.58% in last financial year. Overall, the inventory days, if you look at, is almost around 107 days as against 108 days in last financial year. It's mainly because we were looking to reduce the inventory, but the finished goods inventory in the month of March has significantly moved up because a lot of the consignment, which was meant to be exported, they could not be done because of the lockdown situation. As a result of that, finished goods inventory has a little moved up. If you look at on receivable fronts, our overall receivable in the current financial -- in March '20 is around 71 days as against 64 days in last financial year. And that is also largely because of month -- in the month of March after the Janata Curfew was announced, the domestic credit by whole industry has increased by around 10 to 15 days. We have also increased our domestic credit by around 10 days. And also, export receivables, also, there were issues because most countries were facing the lookdown situation. So remittances could not come. As a result of that, overall debtors has moved up by almost around 7 days, by and large. If you look at the IQVIA MAT March '20, our domestic market share has significantly improved. If you look at MAT March '20, our market share has gone to around -- almost around 1.67%, and our rank has improved to 19 as against MAT March '19 number of market share of around 1.58% and rank, which was around 21. So we have jumped the rank from 21 to 19 in the overall MAT numbers. And if you look at our market share in represented market of the molecules we market, there also we have increased our market share from 5.36% to around 5.49%. The top 10 brand in Indian market has contributed almost around 57% of our business as against 56% in last financial year with a growth of almost around 20%. The cost optimizations and process improvement was the major area, which are -- which we are continuously working to reduce the wastages, improvement in reaction efficiencies in API plant. Some of the dedicated plants were taken up for automations that has given us the good consistencies in output and also lower cost of production. Thanks for listening to me. With this, I would like to open the floor for question and answers.

[Operator Instructions] We have a first question from the line of Aditya Khemka from DSP Mutual Fund.

Sir, what was our total net loss or profit in the P&L for ForEx for the year -- full year, consolidated?

One minute. I'll give the numbers. Okay. For the quarter, your realized gain is almost around INR 3.54 crores. And we have made a provision for unrealized losses of around INR 24.41 crores. So overall, for the quarter, the loss is around INR 20.88 crores. And if you look at the whole of the financial year, the realized gain is around -- almost around INR 7.79 crore, and the overall provision is around INR 21.75 crore. So overall loss on exchange is almost around INR 13.96 crores. And it's only because of I think -- there was a significant movement in dollar to INR 75.66 as against March '19, it was around INR 69.15. Even though our fourth quarter average realization was around INR 72, but year-end assets and liabilities and forwards and everything mark-to-market was done at around INR 75.66. So there was -- these kinds of small losses are there. But by and large, now, our assets and liabilities are balanced, the foreign exchange. It's only -- by and large, this loss is relating to certain mark-to-market on forward contracts.

Right, sir. And this INR 14 crores net loss for the full year on ForEx?

Yes, that's what number I have given. Yes.

We have next question from the line of Rahul Jain from Credence Wealth.

Sir, just trying to understand the domestic formulations business. We have had a strong growth in this quarter of more than 20%. And for the full year also, this is at 16% versus last year also -- over and above 16% last year. So what has led to this strong growth? Because compared to some of the other domestic peers, we have done much better. So what has led to this growth? And how do we look forward for the next year or 2 to come? And sir, in the previous call, you had mentioned about -- talking about our growth plans and targets and guidances for the next 2, 3 years. Where do we look our company from year on in terms of growth for the coming 2, 3 years?

Overall, if you look at our therapeutic performance of fourth quarter and also for the financial year, if you look at our pain portfolio in the month of April/March has grown by around 26%. And overall, for the whole of the year, its growth is around 20%. Our cardiovascular and antidiabetic portfolio has grown by around 10% and for whole of the year is also around 10%. Our antimalarial business in the fourth quarter was a little better at around INR 16 crores as against INR 12 crores. So it's around 33% growth, and for whole of the year, this portfolio has grown by around 7%. Antibacterial has done very well for us in the current financial year. In the fourth quarter, we had a growth of around -- almost around 40% in antibacterial portfolio, and for whole of the year, it's around 35%. Our another main business like CNS has grown by 18% in the fourth quarter, and whole of the year, it has grown by around 20%. Our urological portfolio has grown in fourth quarter by about 18%, and for the whole of the year, it has grown by around 24%. And ophthalmology is relatively new business and small business, which has grown by around 29% in the fourth quarter and overall it is around 38%. So overall business growth in fourth quarter and also for the whole of the financial year has been good for us, and that trend is continuing. Yes.

And sir, in terms of how do you look at this company for the next 2, 3 years? We are also looking forward for the EC approval at Dewas expansion. You had mentioned in the last call that by June, we are expecting the EC approval, and we'll do a CapEx of around INR 250 crores. So if you could spell out the plan for next 2, 3 years in terms of our growth profile.

Overall, let's say, that is the major CapEx we have planned because on the API front, we are continuously facing the capacity constraint. So around 2 or 3 plants will be put up at Dewas, and we are expecting the EC. Final hearing is over, and I think minutes are out. It's only that final EC has not come in our hands, and till the time EC come in our hands, we can't even lay a brick. So hopefully, we are seeing that in this month end itself or maybe early part of July, we should get EC in hand and thereafter we will be able to start the construction maybe by July end or so, finalize the contracts and everything. So monsoon may disturb the kind of schedule thereafter and, hopefully, the -- some kind of work will start only after September after the monsoon is a little settled. And hopefully, in this financial year, there will be only kind of civil work will happen. And most of the installations and other things will then go because we will only get 6 months to set up the plant in current financial year thereafter. So hopefully, the plant will become operational in the next financial year only. Overall, I think the CapEx number in the whole of the year may remain almost around the range of around INR 250 crore in current financial year, which will also include some of the initiatives we have for the solar power and maybe around INR 20 crore to INR 25 crore we will be investing in there. In current financial year also, we have invested in solar and wind power almost around for our captive consumption of around INR 17 crore in the current financial year. And overall, if you look at the -- our guidance for the current year, we are -- there are -- a lot of uncertainties are there. And still there are many places -- our reps are not able to meet the doctors, and there are -- a lot of issues are still there at -- but we will be able to grow in the current year, overall, maybe around in a range of around 14% to 17% in the current year. And maybe our EBITDA margins will also improve by around 1.5% in the current financial year.

So 14% to 17% is for overall company, right? At the company...

Yes, overall company, yes.

And any guidance on MR addition this year?

We are not adding much of MR in this year because this is not the time to add MR. And hopefully, we'll be working with similar kind of strength in the current year, but we have currently...

Sir, last thing on the remedial cost. This year, if I'm right...

Current financial year, we have incurred almost around INR 16 crore. And overall, I think in this quarter, we have incurred around INR 3 crores on remedial thing.

So this year also we'll do around INR 16 crores, INR 18 crores only in FY '21?

No, I don't think so even that number will be there, maybe a few crores. So henceforth, we will not talk of any remedial costs now.

[Operator Instructions] We have next question from the line of Ravi Naredi from Naredi Investments.

First of all, great congratulations to give highest top line and bottom line of this company in this financial year '19/'20. So you and your whole team is -- I'm giving the congratulations for them, sir. And sir, what is the actual position of U.S. FDA now?

There is no change in the situation still. We have done the remedials, everything and informed to FDA, but when the FDA will come, we don't know. There are still uncertainties because in current situations, the FDA may not visit. So it may take some more time. Very difficult to put any kind of guesswork on when they will come and when the plants will get approved. But as far as we are concerned, we are fully prepared and geared up.

Okay. And sir, one more request. Along with the results, if you can give investor highlights or some more information, it will -- we will appreciate this information. So it will be more useful for us. And sir, what is the current situation of debtors and stock in the current quarter versus March '20?

Definitely, there is -- a significant liquidation of finished products has happened. And even there is an improvement on realization front. So on both the sides, there is -- improvements are there -- good improvements are there.

We have next question from the line of Surya Patra from PhillipCapital.

Just 2 things. On the -- first on the one-off charge that you have -- impairment charge that you have built in the quarter. Can you just elaborate something on that? What is it all about and why at this stage? Because -- yes, so if you can add something on that. And secondly, on the HCQS side, whether any number that we have already seen. And even in the current quarter, running quarter, even if we have played a kind of important role there for the U.S., how big is the U.S. market currently and what share that we are anticipating? Something on those lines.

So overall, let's say, on product-wise numbers, we don't give, but we did a reasonably good business in the first 2 months of the current financial year on hydroxychloroquine. In this month, overall, because government was talking about that they are relaxing the restrictions and, therefore, I think from 25th of May, they have started -- stopped giving the overall DGFT approval. And now it's around 17th of June. So the approvals are not coming and neither notification has come. So whole -- we are also stuck up and other people -- everybody is stuck up. No consignments are moving except for the consignments for which approvals were given prior to that. So those -- normally, after the approvals are there, immediate shipment happens. So hardly few approvals are there which are a little -- for a little longer period. So in this month, there are -- uncertainties are there, but, hopefully, I think notification should be out in a few days' time, and we should be back in the business. As far as the U.S. part is concerned, we have, yes, exported some quantity there, and it's too early that what kind of market share we gain. So probably we are working hard on that, but time only will tell. And right now, we'll not be able to highlight that what market share we are expecting and all and what is the market number.

Okay. How big would be the market share? Any sense on that?

Right now, I'll not be guessing anything because...

No problem, sir.

Trump has withdrawn -- I think U.S. FDA has withdrawn the emergency use of this particular drug in the U.S., and it's a regulatory matter, so I would not like to comment on that.

Fine. Second thing, sir, on the interesting aspect that you have said this time, the -- what is the captive API-based sales that you have achieved in FY '20. So that is 55% versus 54%. But when we talk about captive API, what is the level of integration, sir? Whether it is just a couple of N minus 1, N minus 2 onwards to the API level of integration or it is kind of to the KSM level or to the intermediate level? So on that front, if you can qualitatively share something on that. And secondly...

So we are not in a business of, let's say, the first to file and first to market. So we don't look at N minus 1 at all. Our whole focus is to build the very robust and competitive product. And therefore, we always look at the products that how do we produce in-house itself or maybe outsource from India itself or get it manufactured, give technology to others and get it produced from others. So -- and therefore, the whole supply chain should remain in our control. And that's our always focus. Maybe then when we're starting products, we may import certain KSMs and start, but once the volumes start building up, we then take it up everything, the KSM, also production in-house. And we have very good level of integrations on most of our API.

Okay. So that means for most of the key APIs, it is fair to believe that we would be...

Yes, yes, it's a very -- very good level of integrations are there. And we have -- and therefore, our inventory days are also a little bit higher because we have to keep the KSM production, we have to keep the API production and then your -- also formulations production. So inventories are there at a multiple level because of that. But production of KSMs and intermediates help us to keep absolutely supply chain in control and cost efficiencies in control.

Okay. Considering this...

Sir, I'm sorry to interrupt, would you like to come back in the question...

Yes. Can I just complete this?

Please come back in queue, sorry. For the follow-up, kindly come back in the queue, sir. We have next question from the line of Kunal Dhamesha from [ Systematics Group ].

So the first question is on the revenue guidance that you have provided of 14% to 17%. Does it include the hydroxychloroquine tailwind? If yes, is it what we have supplied till now? Or do you expect further addition to what we have suppled? And then I'll come up with another question.

As far as hydroxychloroquine is concerned, we are a long-term player, and we market these products in a lot of ROW markets for rheumatoid arthritis and osteoarthritis. And it's a large number of countries we market that product. We market this product in most of the generic -- in Europe -- European market, in Australia, in Canada, and now we are exporting also to the U.S. So it's a very large amount of countries and very wide basket of countries where we market this product. And that is for your rheumatoid arthritis and your lupus. As far as India is concerned, we also market this drug for diabetes. And because of, let's say, its use in COVID, some kind of additional revenues has come in the current quarter. In last financial year, there was hardly any kind of things relating to hydroxychloroquine in the last 10 days of the month after Trump's announcement as a game-changer and all that. So there was hardly any shipment of hydroxychloroquine formulations and all. So practically, the -- some kind of additional business has happened in the first quarter. And when we are finalizing our budgets in the month of March, those scenarios were becoming clear. So certain kind of things were factored in our guidelines. And -- but we didn't factor the dollar-rupee at INR 75. Our budget was at a little lower level of around INR 72, INR 73. So the cost is also increasing because of that and also realizations are also improving. So those things were factored. But there could be some kind of upside because of overall currency. But because of lockdown and all, certain hits are there in domestic market and overall. So overall, we have factored into all these situations and then came out with overall guidelines of around 14% a 17% kind of turnover growth, which includes even additional business what we have done on hydroxychloroquine in the -- and also the significant government business, which we have done in India in the first quarter of the current year -- first 45 days. All orders of government we have completed within 45 days from, I think, 1st of April to 15th of May. So that business was also around -- close to around INR 40 crores we have done.

Okay. Sir, as far as I understood, we have still assumed some growth to be coming in the coming months, right, besides what we have done?

Yes, definitely, there are markets which are still buying hydroxychloroquine, and those will continue. And as far as India is concerned, the ICMR guidelines are very much clear that it is to be used as a preventive. Also, it is used to be -- used in the early stages and also when the person is in the mild kind of stage. Once person goes in ICU kind of situation, this drug has no role.

Okay, okay, okay. And secondly, on the same guidance that you have provided, if you could just provide more color in terms of, let's say, broader moving pieces in terms of export formulations and export API, where do we see those moving pieces in FY '21? That's it from my side.

Let's say, export formulations and API will also have a good growth. Only domestic business what we have projected is almost around -- the business growth of around 11.5%. API business will continue to have good growth and domestic generic formulations also will have a reasonable kind of growth. So right now I'll not be able to give you numbers. But yes, we have factored all those kind of things and then arrived at the overall guidance.

We have next question from the line of Nikhil Upadhyay from Securities Investment Management.

Congrats on good set of numbers. Sir, 2 bookkeeping questions. One is on the consol, we see a major jump in the depreciation. So if you can just help me understand why that jump has happened, so from INR 45 crores to almost INR 64 crores? And secondly, because we merged Noble Chemicals also, so is there additional costs which would have come up? And if you can quantify those costs.

As far as Noble is concerned, the NCLT order came in the month of February and then we were -- that has been consolidated, but there is hardly any kind of expenditure has come because since then, in the month of March, there is a complete lockdown and nobody is able to visit. So we have not done any kind of work on Noble till date. So there are no expenditure, except the security cost, which is currently there of the land. So there are no cost. And this plant was also not running of Noble. So last 14 years, it was close. So we will have to look at afresh and then start. And this acquisition is largely because it's a low-cost land, and we are looking for manufacturing large amount of KSM ourselves, and future journey of KSMs we want to have from this particular place where a good amount of manufacturing will happen internally. So it will become a KSM site for Ipca in the long term. But we have also applied for environmental clearance and everything and that will still take a long time. So nothing would happen on ground maybe around 1.5 years from now.

And on depreciation, the jump?

On depreciation front, basically, it's -- when we had done the Bayshore acquisition, the acquisition cost was almost around the $10 million, around that. And by and large, it was assigned to whatever ANDAs they were holding. And those ANDAs are depreciated by us in the fourth quarter of the current year by almost around $2 million. So that is based on that. So that has added to the overall depreciation going up.

Okay, sir. On a normal run rate, it will be around INR 44 crores, INR 45 crores only? Or this INR 64 crores would be...

Yes, yes, yes. That's true.

And sir, can you give the breakup of the different country-wise revenues for full year?

Yes. One minute. Yes, I'll give the numbers here. Overall, promotional markets, we have done business of around INR 77 crores as against INR 94 crores in the last financial year. This business got hit because of shipment could not happen in the month of March. A lot of shipment got delayed. So overall, there is a decline of almost around 19% on promotional market, which include CIS, Asia, Middle East Africa, Latin America and Africa. As far as European business is concerned, there is a growth of almost around 47%. Business is around INR 75 crores as against INR 50 crores in the last financial year. Australia and New Zealand has grown by around 28% in this particular quarter. Canada has grown by almost around 53% in this quarter. Business is around INR 22 crores as against INR 14 crores in last financial year. South Africa has also grown by around 33% to around INR 22 crores as against INR 16.5 crore in last financial year. So overall, generic business is around INR 165 crore as against INR 117 crore last year. So generic business has grown by around 40% in this particular quarter, but the promotional market business is down by around 19%. Institutional business more or less remained at the same level of around INR 40 crores. Last year, it was around INR 41 crores. So overall, generic business, including institutions, has grown by around 29% to INR 204 crores as against INR 158 crores in last financial year. And overall export formulation business growth is around 11% because of decline in the -- your promotional market business. So overall business is around INR 282.5 crores as against INR 253.6 crores in last financial year. So around 11% kind of growth is there in the year. So that is the Q4 number. If you look at the whole of the year number, we did a promotional market business of around -- almost around INR 381 crore as against INR 361 crore last year. So there is a growth of around 6% is there on that. And largely it will hit by the fourth quarter number. And had there been no lockdown, this business also would have grown by around 12% kind of thing because a good amount of shipments were hold up. As far as generic businesses are concerned, we have done around -- business of around INR 659 crores as against INR 521 crore in last financial year. So around 21% growth is there, of which I think Europe has grown by around 31% to INR 319 crores as against INR 243 crores in last financial year. Canada has grown to INR 78 crores as against INR 48 crore in last financial year. South Africa has grown to INR 110 crores as against around INR 96 crore and so around 14% kind of business growth is there. So overall, generics per se has grown by around 27% and -- including institutions because institution business growth is only 7%. So it's around INR 176 crores as against INR 164 crore, so around 7% growth is there in institution business. So overall, generic business has grown by around 22% to 835 -- INR 836 crores as against INR 686 crore in last financial year. And overall export formulations business, including branding, is INR 1,222 crores as against INR 1,148 crores. So around 17% growth is there in that. So these are, by and large, continent and country-wise numbers.

We have next question from the line of [ Bhaumik Patel ] from Canara Robeco Mutual Fund.

It's Amit Kadam. So my first question is that, are we providing guidance for the tender business for FY '21? Second is -- question is because now government is coming up with this policy to boost API and intermediates manufacturing in India. And we have this Noble Explochem acquisition what we did last year. Are we going to seriously or maybe just paid up something on this particular thing where we can take this as an opportunity?

We are considering certain kind of API even on formulations and also -- but not the antibacterials and all and certain other APIs. So that definitely will be taken up. But those will be happening at the current sites, may not happen at the Noble Explochem because Noble will have to go through the complete environmental clearances and other things, and that will take a little longer time. And overall, if you look at the -- our institutional business, that in the current financial year is likely to be around INR 240 crore or so as against INR 176 crore in last financial year.

Okay. And just last question. So for the API sales, because with a strong base of FY '20, we are still comfortable of growing at double digit for FY '21 because we understand there could be a capacity or something hurdle for us to grow in API this year?

A lot of debottlenecking exercise has been done by us, and that's continuing basis is going on. So there will be good growth on -- even on the API front in current financial year, yes, in spite of reduction in prices of certain sartans.

We have next question from the line of Bharat Celly from Equirus Securities.

Sir, congrats for good set of numbers. Sir, just wanted to understand how the overall input prices are moving for us? Are we seeing any spike in the prices for KSM or the API or the other ingredients?

Let's say, if you look at the whole of the '20, there are significant jumps are there in KSM prices in the beginning of the year. And then the softening trend started from somewhere after Q2. So that trend has continued even now. So the prices have not moved up to that level. And there is a still softening trend is there. And as far as the key starting materials or maybe I will not say key starting material, it's, basically, basic materials which we import from China for hydroxychloroquine. Those prices have significantly moved. Some of the -- they are starting, chemical-wise, from around $5. Some of the people have imported at $45, $30, those kind of things -- from $5. So those are the kind of the jumps are seen. But as the numbers of COVID were starting from -- they have started coming from January onwards from China. And looking at those situations, we have imported certain -- those kind of basic materials from China well in advance for much higher inventory levels. And therefore, we have not paid a single penny extra on the import of those kind of starting material, and now prices are normal again. So as far as we are concerned, we are not impacted, but industry is impacted.

Okay. So you're saying that for the future shipments also, which will be now taking in the future will be also -- that has already started seeing normal prices. Is it correct?

Yes.

We have next question from the line of Manoj Garg from White Oak Capital.

Sir, just want to understand -- basically since you have commented about government supply on HCQ for the first 2 months, so would you like to call upon, sir, what could be the total contribution of HCQ in your this 14% to 17% kind of guidance which you are giving for FY '21?

Normally, on product numbers, we don't talk. But as far as the government is concerned, this is in public domain. We have done almost around 12 crore tablet supplies to the various state government and central government over a period of around 45 days, and we have realized around INR 42 crores. So that's the number I can talk. But on export front and API front and all, I will not be able to give you any number.

Sure, sure. Understand, sir. And second thing, with your guidance of 140, 150 bps kind of margin improvement, even in fiscal '21, we would be closer to the average industry margins of around 22%, 23% by fiscal year 2021. While we have seen a lot of improvement in terms of operating leverage over the last few years, how much you feel still the steam left in terms of further expansions in the operating margins going forward, maybe beyond fiscal year '21, sir?

We still have a lot of room to improve the margins because some of our plants, which are more on formulations side, have yet to become productive, as they are still incurring losses, more particularly my Piparia plant and SEZ plant. As the utilization of those plants improve after the U.S. resolution, some of the European products and other products we have started taking at those sites and improving, but significant capacity utilizations on those plants will further improve the margins for us because all costs are incurred also today.

Sure. And if I can ask the last question. On the subsidiary side, sir, like we have seen around 35, 40-plus kind of process in this year. Anything you would like to highlight about that in terms of the path to profitability in those subsidiaries? And what could be the time line?

Let's say, there are -- 3 major operations are there: one is your Onyx, which is there at U.K., and they do the CRAMS business. They have done very well, and they have contributed almost around INR 18 crores of profit in the current financial year. And their growth is very, very good, at almost around -- they have done business of around GBP 8 million, and I think around INR 18 crore kind of profit they have contributed to the -- in the consolidation. There are -- the 2 other operations are there. One is your Bayshore. Bayshore has been acquired by us to become a front end for the -- our formulations sales in U.S. Currently, they are doing business, which is mainly for trading. And trading margins cannot be very significant. And they contributed in the current year almost around INR 155 crore of business. But their overall profit before amortization is just around $2,00,000. So very insignificant profit, and we were not really looking for big profits to come from the Bayshore on trading front. If they are able to manage and give some kind of profits on trading and continue that because that acquisition was by and large to become for our front-end for the U.S., and this loss of Bayshore is only because of amortization of cost what we have paid. So that loss is kind of your amortization of those costs, not the real loss what they have incurred. They have contributed some kind of EBITDA to the company. And we don't expect very large profits to come from that operation till the time our operations and they become front end for us. And we have already sent some -- certain kind of shipments of hydroxychloroquine. And as resolutions happen, then they will become front end and then they will start contributing overall to the profitability of the company. The third operation, which is there, is Pisgah site and -- which is, by and large, we have acquired for, again, front-ending the CRAMS business from U.K. There are certain projects which we've got, again, because of this lockdown and others -- those kind of projects are getting delayed, and certain APIs we have transferred the technologies, and they have done the, initially, piloting and all, but U.S. inspection of that is pending. So those commercialization is also not happening there till the time the U.S. inspection happens. So that is what is the operational -- your -- the losses what they have on that. At the time of acquisition, there were certain products -- they have out-licensed certain patent. And they were getting almost around -- over $1 million as royalty, but the party to whom they have given technology, they have significantly lost the market share. So that $1 million royalty has come down to around less than $2,00,000 kind of royalty. So whatever the -- on acquisition price, which we have factored some kind of -- that has taken as an impairment. So almost around INR 27.6 crore we have taken a hit of impairment charges. And those royalties were very consistent for a very long period of time. So looking at that, we have done the factoring around that time of acquisition. But suddenly, the parties to whom they have given their technology -- this patent out-license, they have significantly lost market share, and we had to factor that impairment in our balance sheet. So these are the major operations which we have. And so we don't expect much of the profitability to come from Bayshore till the time they -- Onyx will continue to do very well; and Pisgah, there will be improvement.

Yes. So whatever the difference between...

Sir, I'm sorry to interrupt, would you like to come back in the question queue?

Sure.

We have next question from the line of [ Gaurav Hinduja from GETL Capital ].

And congratulations on a great set of numbers. My first question is with regard to your branded export portfolio since we saw a marginal dip of 19% this quarter. Any specific guidance on how we could look at in the future? And besides the supply strain restrictions, is there anything else we can attribute this dip to?

Let's say, almost around INR 26 crores worth of shipments of these markets were -- could not go. So the first quarter will see a good -- a very great set of numbers again because these shipments have gone in the first quarter of the current financial year. But again, what would happen is, a lot of countries are having lockdown situations and others. And similar kind of situations are being faced in various markets. Like, say, we have Russia as a big market, and there again, the people are -- my medical reps are not able to operate, and they are not able to meet the doctors and other things. So some kind of business dip will happen, but that will offset by this additional kind of the business. And we have projected almost around 12% kind of growth in promotional marketing next year. Had it been a normal situation, this growth, because of this INR 25 crore, INR 26 crore shipment, would have been significant. But we have factored in all these kind of numbers and then only given you the overall guidance of around 14% to 17% kind of number.

Okay, sir. And my second question is with regard to your CapEx guidance for the full year -- for next year, considering you are planning to add more capacity. So any guidance on that front?

See, overall CapEx number will be almost around INR 250 crore in the current financial year. Out of this, maybe around INR 60 crores, INR 70 crore will be spent on Dewas on the initial startup and civil and all those kind of numbers will be there. Rest, maybe around INR 180 crore, INR 190 crore will be the normal CapEx, which will also include some kind of initiatives on your clean energy and your solar, which will be almost around INR 20 crore. And a lot of CapEx is going on automation part. So maybe -- and also upgradation of certain kind of lab software and all -- a lot of those software upgradations and all. So maybe around INR 15 crores, INR 20 crores will be spent on that aspect. And automation expenditures may be around -- maybe again around INR 15 crore to INR 20 crore and certain environmental expenditure and all. So by and large, it's a normal kind of CapEx and also to do the debottlenecking of the capacity, which is continuous basis happening particularly on API side. We don't foresee much of the expenditure on formulations side, except around INR 30 crores which we are spending again on our Pithampur site to keep the site ready for significant higher capacities. If the -- once the U.S. resolution happens, that will be the site which will do the more formulations business. So we are preparing for the future.

Okay, sir. And any trend...

I'm sorry to interrupt. Would you like you to come back in the question queue?

Okay.

[Operator Instructions] We have next question from the line of Sameer Baisiwala from Morgan Stanley.

Sir, is it possible for you to tell us how did the sartan prices -- I mean at what level it peaked? And from the peak, how much it has come off in Q4 and Q1? And has this normalized? Or do you see it roll down further in the next couple of quarters?

Let's say, large fall has happened in valsartan prices, which used to be almost around $270 to $350 kind of thing. Of course, at that level, we didn't enter into. We entered at much latter level. And the current price is maybe around $125 to $150 range. So that's the kind of level has happened. As far as losartan prices are concerned, they were normalized in last financial year in the Q3, Q4 thing. So maybe around $100 to $110, that's the pricing which is there.

Okay. And do you think it's now stabilized? Or do you think it can go down...

They have stabilized. Because the Chinese players are now in the full swing also on those kind of products.

Okay. And sir, second question is on the U.S. business. Sir, just your perspective beyond the remediation. How would be the contours of recovery? Do you need both Ratlam API and Pithampur formulation? Even if one comes on board, you can start the business? And how would it ramp up in 1, 2 and 3 years?

We are really not looking at today because, first thing first, let the FDA get cleared and then we will be able to talk all that because even if we give numbers and it gets delayed, then it's -- so let that thing happen, and then we will give the guidance, that would be better because that is what -- then we can perform on those guidelines.

We have next question from the line of Bharat Sheth from Quest investment Advisors.

Congratulations on good set of numbers. Sir, just want to understand from 2, 3 years perspective, when one side we are saying, some of the plants, we are not able to make it because of -- it is not fully operational, so it is incurring loss, and other side, we have acquired Norble Explochem, I mean, for future expansion. So I want to have some kind of -- I mean your broader understanding, how do we really see and what we are doing to ramp up, I mean, utilization of these existing plants, which are currently not making profit?

Let's say, there are -- 3 things are there. One is your formulations, which are for domestic market. We don't have much of surplus capacities and neither we are setting up plants because Sikkim plant was expanded in last financial year, and that's been suffice for the capacity. So we don't need any kind of capacities, neither we have significant surplus capacities as far as domestic plants -- domestic formulation plants are concerned. As far as the generic plants are concerned, generic exports, by and large, the Pithampur and Piparia plants, these are 2 plants -- were set up for the U.S. exports. And currently, the U.S. resolution is taking time. So these are the 2 plants, which are -- we're having a lower capacity utilization and incurring losses currently. As far as API is concerned, we have been continuously talking that our API business has significantly moved. It's almost around over INR 1,100 crore, INR 1,200 crore kind of business now. And it's also continuously growing. And we are facing a lot of capacity constraint as far as API is concerned. Plus, in order to have a lot of, say, supply chain in control for the future and upcoming APIs and API which we are currently importing certain KSMs, we need the kind of CapExes and others for API as well as for the key starting materials. So Dewas plant is largely for API side, and Noble acquisition is largely for the long-term requirement of my KSMs. So these are not the kind of thing which -- where we have any kind of surplus. On a continuous basis, you need to do the debottlenecking of capacities on API to sustain the order flow than currently what we have. So that's what is currently happening. So it's only for the formulation plants, which were made for generics, there we have surplus capacity, nowhere else.

Okay. Sir, on Noble Explochem, how exactly we have -- since it has been fully acquired. And I understand that all environmental-related clearances are already there. So where do we start? I mean giving some...

There is no -- see, environmental-related clearance will start now. That process will start now. There is nothing -- it's only a plant -- it's a land with some kind of infrastructure, good civil constructions and a lot of -- those infrastructures are there. But the plant has been closed for last 14 years. So that has to restart and -- for the KSM production. And it was an explosive plant with good nitration chemistry. So a lot of those kind of KSMs, which are based on nitration and other chemistries, we will do there, but it's still -- I would say that anything starting there on ground will take minimum 18 months from now.

We have next question from the line of Rahul Sharma from KARVY Stock Broking.

Yes. What is the R&D spend in the current year, sir?

R&D spend is almost around 2.5% in the current year because now we are not incurring any kind of cost relating to U.S.

Okay. How much was CapEx? And...

CapEx was hardly any because it's only INR 3 crore, INR 4 crore. All is revenue. And revenue cost has moved up.

Sir, I missed out the revenues of some of the key geographies like U.S., the CIS...

I will separately provide you those numbers after the call.

We have next question from the line of Amar Mourya from AlfAccurate Advisors.

Sir, firstly, my first question would be, in terms of the operating guidance which we had given, this includes the ForEx -- before ForEx or this is after ForEx?

Let's say, I have said that ForEx -- our balance sheet is, by and large, balanced now. Assets and liabilities are balanced. I have hardly ECB loans of around $19 million as of March, out of which $9 million would be paid in current year and I think balance would be only, say, around $10 million to would paid in next financial year. So there are long-term loans or hardly any balance sheet. And balance is only on the -- your -- the cheaper finance which we take on packing credits in foreign currency and also on the bills discounting. So -- and against that, we have the other receivables and all. So by and large, as far as the balance sheet is concerned, we don't have any kind of balance sheet risk because if we have $50 million, $55 million of receivables, around same is the number of import payable, your ECBs and your packing credits in foreign currency. So rupee-dollar at any level will not impact the overall balance sheet. But as far as my forwards are concerned, currently, we are hedged at around 47% of our NFE level currently. And the hedge is also at good levels are there. Most of the hedges has happened after the rupee-dollar has moved in. And therefore, the -- but whatever outstandings were there at March end, certain kind of mark-to-market was provided, and that has resulted in around some kind of losses, which are INR 13 crore, INR 14 crore in the current financial year. But by and large, as far as stand-alone basis, asset liability basis, we don't have much of balance sheet risk today on account of ForEx.

So your OPM guidance, what you have given, about 150, 170 bps improvement is on FY '20 before ForEx loss...

We have factored in at around INR 72 when we made the budgets. I don't factor INR 75.

That we understood. My question is on what base of FY '20 -- FY '20 number base before ForEx loss or after ForEx loss? Because you are talking on bps improvement, am I right? You're not talking...

Sir, as far as the ForEx loss or gain is concerned, it is -- we cannot anticipate today what will be the dollar rate on 31st March next financial year. So whatever guidance we have given is based on dollar to rupee about INR 75. So beyond that, anything happens or below that anything comes, there will be some exchange gain or loss.

That I understand, sir. My question is -- let me again reframe my question. On what FY 2020 base you have taken this number? Whether FY '20 basis EBITDA before ForEx loss or EBITDA after...

No, no, it is before ForEx loss or gain. Yes.

Okay. And my second question is in terms of the capital expenditure, which you have talked about, the INR 250 crores which you're planning to do now, by when you think it will start -- commence the operations? In which year?

Out of this CapEx, what we are talking for the current financial year, about INR 40 crores, INR 50 crore will go for Dewas. That is all start-up CapEx, building site development and all. The production of Dewas will happen maybe in the year 2022-'23. So CapExes are all routine maintenance CapExs and a little bit for environmental and a little bit on solar and wind power energy.

So when that CapEx is for Dewas. This capacity -- can you potentially -- what kind of revenue...

Dewas is a vast land bank. There is scope to further expand that capacity. Initially, we are talking about 3 API manufacturing plants. Going forward, you can expand that also.

I see. Understood. Understood. And tax rate can...

Sir, I'm sorry to interrupt. Would you like to come back...

No, there is no tax break.

No, no, any guidance on tax rate? What's the tax rate one should assume for full year, FY '21?

We have almost INR 300 crore of around MAT credit line with us. And I think another 2 years, we will remain at -- to utilize those kind of MAT credit. And thereafter, we will be around 25%. Currently, because of MAT credit utilization, the tax rate is around 17.5%.

We have next question from the line of Susmit Patodia from Motilal Oswal AMC.

I wanted to check, these times must have been difficult for some of the smaller pharma companies in domestic. So are you seeing any nice M&A opportunity now? Would you be looking at it?

We have been always looking at M&A., but so far we have not succeeded in any opportunity wherever we were interested. We keep looking on whatever opportunities there are in the marketplace, and we are evaluating every opportunity that comes to us, but nothing has happened so far.

So the deals are not getting better even in this environment?

No, no, no.

Okay. And sir, second question is, you said that the R&D spend is down to about 2.5%. So assuming U.S. comes back at some point in time, where do you think this goes and stabilizes?

Over a period, it will increase to about 3.5% to 4%. It was our rate when we were doing a lot of work for the U.S. market. It won't go beyond 4%, 4.5%. It won't.

We have next question from the line of Prakash Goel from ICICI Prudential AMC.

Congratulation on a good set of numbers. I have 2 questions. One is with respect to -- can you summarize the guidance across India, institutional, API, generics and branded?

It is very difficult period to give any guidance on India business. But overall, we are confident we will grow our business by around 14% to 17% based on rupee-dollar rate of about INR 75. That is what we have factored in our budget. That is the only thing what we can say today. And in this growth also, as Mr. Jain said, there is some benefit that has come to us because of sales of hydroxychloroquine sulphate between April and May. And some more orders are there. As and when the exports get cleared, we will supply those orders also. So there would be definitely some contribution from the sale of hydroxychloroquine sulphate, which we have factored in our growth what we are giving, 15% to 17%.

Okay. So the additional order, which you are mentioning, if that gets supplied, 14% to 17% guidance will get increased...

It will get definitely supplied. Because of confusion in lift of this embargo on hydroxychloroquine sulphate by government, there is some confusion. Earlier, we used to get permission to export. But because now it is getting lifted, this embargo, there is confusion. Neither the notification of lifting that ban has come nor any approval order to order is coming today. So last 15, 16 days, even though we have order -- we have ready goods, we cannot supply.

My second question is impairment in Pisgah. What is the plan ahead? And -- as to why we are taking...

Whatever that impairment was there, as Mr. Jain said, it was based on the future receivable of the royalty what we factored when the acquisition price was paid. This was onetime. There is nothing left out in that now.

And what is the plan ahead? That is the question.

Pisgah, as Mr. Jain said, we acquired that unit more for CRAMS-related activities. So several projects are ongoing, but because of this lockdown, there is some delay. Plus, 3 to 4 products of our own we will be doing site transfer for manufacturing and sale in the U.S. market, APIs, for which 1 product, we have already filed site transfer application with U.S. FDA. Second product, the application will be filed maybe in this month. Another 2 products are under development.

We have next question from the line of Anubhav Sahu from MC Research.

I have a couple of questions. One is, what was the capacity dedicated to HCQS before COVID and what is it now? And are we...

As far as hydroxychloroquine capacities are concerned, we were earlier producing around 17, 18 metric tons, and current production is around 25 metric tons. So that's the only change. We didn't increase any capacity on hydroxychloroquine. That's the installed capacity what we have. And for onetime sales kind of opportunities, you don't incur the CapEx and increase the capacity because hydroxychloroquine is a drug, which is a very specialized only for rheumatoid and arthritis. The COVID is a small time business opportunity, and that we have done -- whatever businesses we have done with producing at full kind of capacity. And also, we were holding some kind of stocks that we have converted and did the formulation kind of business -- good formulation business. But a lot of people are expanding the capacity. They will repent because it's very difficult to sell these kind of products unless you do the marketing for rheumatoid arthritis and all that kind of things. And we are a global player as far as this product is concerned, and we have footprints practically everywhere.

Got it. And sir, whatever we are producing right now, are we getting all the required API for it captively? Or do we need to source part of it?

We produce KPIs (sic) [ APIs ] and also KSM ourself. We don't depend on anybody else.

Okay. Even for the increased production, you don't need getting from...

No, we don't need -- we don't depend on anybody.

Okay. And sir, can you guide -- for the 1.5% EBITDA margin improvement, which you are guiding, would it be largely because of the change in product mix or some operational cost savings also you're accounting for?

It's a mix of everything.

I'm sorry to interrupt, sir. Would you like to come back in the question queue? We have the last question from the line of Nikhil Upadhyay from Securities Investment Management.

Sir, just 2 things. One is on this institutional business. Just want to understand, you said that from INR 175 crores, we would probably reach INR 240 crores. But do you see any risk that the budgets, which are being allocated towards products and all, could be impacted? Because most of the countries and most of the agencies are devoting a lot of money towards research and fighting COVID as of now. So just to understand this number a bit better.

We don't foresee much of risk, and it's also additional business which we are currently doing on injectables. That's also contributing to the better growth in the current financial year. And that is included in our guidance for the -- from 270 -- INR 175 crore to INR 240 crore number. And there is a good visibility now in -- because last year, the procurement has not happened to that level. So institutions are also procuring the -- higher procurements are happening and also additional business which we are currently getting on injectables. So that is factored and then given the INR 240 crore kind of guidance, yes.

Okay. And lastly, sir...

Without much of risk on that.

Okay. Lastly, sir, if we look at it, like, in terms of our CapEx and a lot of CapEx we are putting towards API and KSM, now considering if U.S. status quo remains for the foreseeable future because we don't know how FDA will come out and things, and there is too much uncertainty. So keeping that aside, would you say that for Ipca, this API contribution, which is around 25%, 26% could probably move to 30%, 35% over the next 3, 4 years? And if that is the case, when we are selecting the APIs and -- so would we be the lowest-cost producer there in the APIs where we are competing? And so if you can just help me understand this, over a 3- to 4-year period, how do we see the mix of API and formulations, keeping U.S. status quo as it is?

As far as your use of word that a lot of CapEx, we don't have a lot of CapEx as far as API overall is concerned. We are still very conservative as far as CapEx is concerned. And largely, this CapEx is maintenance CapEx. It's only, say -- current year, around INR 50 crore, INR 60 crore may go for Dewas, by and large, in civil construction and other, and maybe around INR 200 crore CapEx will happen a year thereafter for installations and other things. So that's the thing. But current financial year, let's say, our depreciation itself is more than INR 160 crore, INR 170 crore. So to that extent, there is always a maintenance CapEx. And also, we are spending a lot of CapEx on automation and various products. And that's what I've talked that, yes, we are getting a lot of consistencies and also improvement in overall yields and much lower cost of production. So that's the focus which we have. And a good amount of CapEx will be spent in current year also on automation. We are also spending a good amount of CapEx, again, on upgradation of lab softwares and a lot of other production-related software and maybe around INR 20 crore will be spent on those kind of softwares in current financial year. So that's a running kind of thing and, by and large, it's a maintenance CapEx. And as far as API visibility is concerned, yes, API business is continuously improving and will continue to improve. And I think API can become, in next 2, 3 years, almost around 30% of our business. And by and large, we don't select any API unless we are not interested in formulations of that API. So we look that if we are interested in formulations, then only we produce. Only just for selling API, we don't produce any API. We don't do work on API, if it is only for selling API. So primary focus of API is formulations. And once we are there in API, then we don't ignore it. So we -- that always help you to know that from which quarter the competitions are coming, what are the cost evolving and continuously work on process efficiencies and others and backward integrations, and that helps you to reduce the cost and continuously work. And we keep on filing the variant of API, the processes as the cost reduction keeps on happening. So it's a continuous judgment.

Ladies and gentlemen, that was the last question. I'd now like to hand the conference over to the management for any closing comments. Sir, over to you.

Let's say, overhang for us is only the U.S. FDA, and we are -- as a management, we are continuously committed to see that this resolution happens, and we are focused on that. When it happens, it's not in our hand, but we are fully committed to do that. And thank you so much for participating in the call and sparing so much time. Thank you.

Thank you very much, sir. Ladies and gentlemen, on behalf of IDFC Securities, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.