Ipca Laboratories Limited (IPCALAB) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Ipca Laboratories Q2 FY '24 Earnings Conference Call, hosted by DAM Capital Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nitin Agarwal from DAM Capital Advisors. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and a very warm welcome to Ipca Labs Q2 FY '24 post results earnings call hosted by DAM Capital Advisors. I -- on the call today are representing the Ipca management, Mr. A.K. Jain, Joint Managing Director; and Mr. Harish Kamath, Company Secretary. I'll hand over the call to the management team to make the opening comments, and then we'll open the floor for questions. Please go ahead, sir.

Thanks, Nitin, and DAM Capital Advisors for organizing this call. Good afternoon, and happy Dhanteras to all participants, and thanks for taking out time and joining us for Q2 FY '24 earnings call. Today's call and discussions and answer given may include some forward-looking statements based on our current business expectations, that must be viewed in conjunction with the risk the pharmaceutical business faces. Our actual future financial performance may differ from what is being projected or perceived. You may take your own judgment on information given during the call. Our domestic formulation business for the quarter has delivered a business growth of around 10% with 2 rank jump over corresponding period and Ipca is 13th in Acute segment. On Chronic market, also we had 1 rank jump, and Ipca is now ranked as the 16th in the segment. Ipca has outpaced the industry in both Acute and Chronic segments. Our market share has improved to around 1.92% from 1.89% on MAT basis. It's MAT September 2023 as per IQVIA. For Q2 FY '24, our branded promotional business has delivered a growth of around 15% from INR 127 crores to almost around INR 146 crores. Our export generic business has delivered around 32% growth from INR 200 crores to almost around INR 264 crores. It's -- mainly the business growth has come from U.K. and European markets. Institutional tender antimalarial business has declined by almost around 21% to around to around -- from INR 77 crores to around -- to INR 61 crores. And overall export formulation business in Q2 is at around INR 470 crores as against INR 404 crores in Q2 FY '23 with overall growth of almost around 16%. API business in Q2 FY '24 delivered a growth of around 6% from INR 307 crores to around INR 335 crores. We continue to face the price decline and volume decline on sartans API as well as on antimalarial API business. With both formulations plant in Ratlam API plant now in VI category. For Pithampur plant -- for Piparia plant, as well as Ratlam plant, the import alerts are already lifted and we are awaiting that import alert will be shortly lifted for the Pithampur plant also. We are initiating now the process of augmenting the supply chain and validation -- revalidations of all the formulations and updating them. The whole process may take around 4 to 5 months and thereafter the shipments to U.S. may begin in Q1 FY 2025. Overall, we had given earlier the business guidance for domestic business of almost around 12% to 14%. We maintain our guidelines, in spite the Q2 business was -- growth was around 10%. Overall, in H1, the business growth in domestic formulations are almost around 12%. Our international branded business has delivered in first half a growth of almost around 18%. We have projected a lower growth of around 12% for this business, is mainly because of [ appreciations ] in Russian ruble and certain contingent challenges are -- that are being faced in West Africa. On export generic business our -- at the beginning of the year, our projections for growth was around 7% to 8% for the year. As against that, in H1 FY '24, we had delivered a business growth of almost around 21%. And our revised guidelines for this business for the year, the growth is expected to be around 20%. The overall lower business guidelines, which was given in the earlier in the year, was mainly because we have lost certain tenders in South Africa, and we were expecting a loss of business of almost around INR 60 crores, but the business there has been good in private market and other businesses. And therefore, overall, that decline may not be there. On institutional antimalarial business. The business is likely to decline by almost around 25%. The lower -- it is mainly because of lower demand as well as lower business of antimalarial injectable is largely because of the plant upgradations, which are currently happening. The API business, we have earlier given a guideline of a decline of around 10% to 12%. As against this, the decline may remain at around 7% to 8%. Having given the broad numbers, I will now request the participants to ask questions.

[Operator Instructions] First question is from the line of Surya Patra from PhillipCapital.

Yes. Am I audible?

Yes, you're audible. Yes.

Okay. Sir, this quarter, it seems that you have integrated the Unichem and that is why to some extent, the impact on the core margins and earnings that we have seen. So is it possible to share what is the Unichem number that you would have added in the revenues, EBITDA and PAT?

Overall, I think around 2 months from 1st of August we have consolidated Unichem in the overall numbers. And overall, I think top line which is consolidated almost around INR 285 crores. And I think on bottom line side, there is a loss of almost around INR 16 crores, yes.

Okay. And then at the EBITDA level, sir?

EBITDA is positive, around 5%. Yes.

Okay. Okay. So after having -- sir, it is -- whether it is a full phase kind of integration from the 1st August or it is after 21st September?

It's a line-by-line integration from 1st of August. Yes.

Consolidated. Okay. My second question is about the way forward that we would have decided or thought about after the integration see like what cost synergy, what revenue synergy that we are witnessing or anticipating for the integrated operation. So if you can give some sense about it, that would be helpful?

Overall, we have worked out, say, short-term goals and medium-term goals that's what we need to do because the industry is highly regulated and a lot of approvals are needed before any kind of changes are implemented. On short-term side, let's say, there are certain changes on the -- more particularly in API processes that can be done with minor annual notifications. So that process is already initiated on various raw materials, which can give almost on RMC reduction on those products by almost around 15% to [ 14%]. So that's the one area which is initiated. Second area, which we have initiated is we have also started looking into the API processes where the improvements are required in the processes where almost around 30% to 40% API cost reductions can be targeted. And also the Unichem's overall API business is very low. So there -- with these kind of reductions, your -- the business volumes on API can certainly go up. So that journey we have started looking into. Third process we have initiated is also -- we are looking into their entire utility cost and all. And we expect that almost around INR 12 crores to INR 14 crores kind of utility cost can be reduced in the current financial year itself. So that process has already initiated. Another process what we initiated is we have looked into -- mapped into all your material rates they are buying and what kind of material rates what we are getting. And we find that the API -- the procurement volumes our is very large and therefore, our rates are also -- are lower compared to what they are projecting so -- they are purchasing so -- which is maybe the solvent and acids and alkali and intermediates and all that. So that's the process we have initiated now to align the entire process of procurement. Even on the services and things because we worked on annual contracts with suppliers for all the plants and therefore, those kind of costs are also -- and engineering items and also lower. So that process we have initiated. And that will also start giving results in time to come. Another issue, which we have -- short-term wise, which we have looked into is their logistic costs are very high. By and large, they are -- it is because of 2 reasons. One is their air shipments are very high, which is almost around maybe over 50% is air shipment. So we are looking into the various issues, whereby the productions can be increased and thereby the reduction can happen in the air shipment. And secondly, mostly their shipments, they are not loading the containers at plant. Most of the container loadings are happening at the port site. And therefore, their cost on logistics are also higher. And that process of integrations and reduction of the cost has already started. So that may start giving results from the -- maybe a quarter later. So that process is which we are initiating. So these are the kind of short-term things which we are looking into. Another issue, which we are looking into is the market extension of products, let's say, that there are U.S. approvals are there, like -- market like Chile except the U.S. ANDAs and all that. So that filing process, we are initiating so that we can open the Chile as a market. And without doing any work on the backward side because it doesn't require because entire dossiers are accepted as it is. So with those kind of approvals, the market extension can happen to Chile. We are also looking into reduction of losses, which are currently happening in the -- I think Ireland and U.K. markets and we expect much better prospects also coming from their end. And probably there may not be any kind of losses in the current year. It may result into profitability in the current year. So these are the short-term things which we are looking into. As far as medium terms are concerned, we have identified -- mapped their entire API processes, all the products may be around 50, 55 APIs, which they have. So entire process is identified. We have appointed the team leader for every API. We have mapped in the -- from where the current RMC and where the RMC could go and what kind of changes are required and the entire calendarization is already done. So a lot of work is happening now at the lab level and thereafter the piloting and all. And once those kind of reductions happens all the regulatory filing and then thereafter the approval from the regulator. So that process is long, but we see a significant reductions in their API costing and time to come. Then another issue what we are looking for is market extension of products, like say, we identified that out of your overall Unichem's ANDA. There are certain ANDAs, almost around 17 products we identified where on the 5 products, there could be a biowaiver and those dossiers can be directly filed in, let's say, Europe, Australia, New Zealand, South Africa, where the -- they may not be required so that the -- these are not required. So there are 5 products. Market extension can happen quickly. There are another 12 products where the only biostudy need to be repeated that all parameters of other markets are meeting internally. So those extension could also happen very quickly. Another 24 ANDAs, the products, which are developed that -- with minor tweaking in the dossiers in a period of almost around 18 months from now. Those products also the market extension can be given. As Ipca, we do a lot of businesses in Europe, Canada, South Africa, Russia, various ROW markets and developed markets. So these products of Unichem can also be extended to these markets. Let's say, all these work can happen in the period of around 18 months and there may be some kind of -- some time may be required thereafter for regulatory approvals and all. But those integration process and market extension that process has already initiated. And now that another is the aspect we have also looked into is, let's say, what kind of -- because Ratlam plant is now clear and there are certain common APIs, which they are using, when our cost of productions are lower and those kind of advantage can come to Unichem in their procurement pricing. So those API also -- maybe around 10 to 12 APIs are there, which can definitely be integrated into the Unichem's basket. But of course, those integrations will take time. There are regulatory approvals and all those processes are there. So it's a goal of around 12 to 15 months' time. So a lot of those issues are looked into. And in fact, almost the 55 APIs out of -- 15 API out of their 55 is -- basically gives 77% of their business. And the balance 14 APIs are -- it's taken up, then it is almost around 93% of their business or formulation get covered. So all those APIs we are looking into. Then on ROW market, also both their teams are -- their team and our team are integrating and looking into that how can we increase the ROW market business and all. We have also looked into a lot of their ANDA, which are their -- under approvals and all -- which approvals are expected and all. From that aspect, I think almost around 11 new products can be launched in the year '23-'24. The 9 ANDAs, by and large from April '24 to March '25, that can be launched. And there are 7 ANDAs, which also include 3 -- para 4 also included in that, can be launched in '24-'25. So a lot of those work is currently going on. Of course, that will take time. But from looking at all these data, we are very confident that what we have talked initially when we have announced the deal that we will be able to achieve almost around INR 300 crores kind of EBITDA margins on -- EBITDA on the Unichem side. That is very much possible looking into all these details what we have done. And once the market extension happens and start marketing those products in various markets, definitely, we can make Unichem as a beautiful company.

Sure, sir. Sir, this INR 300 crores EBITDA for FY '25 you mean sir?

I said, 2 years it will take because a lot of work and regulatory approvals are required. Nothing happens in this business without -- because you need to take product, you need to validate them, then develop the dossier changes and file with regulators and take their approvals. There are only smaller things like, say, no solvent is changing, process is changing, no equipment is changing. But in spite of that also with minor tweaking in the process, you can reduce the cost of production and the time cycle reduction can happen. So those are the things which are initially targeted, but that may not give us significant kind of savings. Some savings will start coming from that. But the significant savings will happen with those kind of changes what we have planned and already worked out each API wise. All details and team leaders are appointed. Responsibilities are given to the people and the teams are working. And by and large, their focus in the next 2 years is likely to be the low-hanging fruits. All these are low-hanging fruits that process changing and all. The product development will be on a slower pace in these 2 years. They will work on -- their team will work on market extensions. There's the -- the API team will work largely on cost reduction. So let's say, 80% of the time will be utilized on those kind of processes by the team so that the results can be obtained faster. So that's the process so that we can turn this company into profitability.

Now having some development on the U.S. business front from our facilities. So could you give some sense, sir, about activating our DMS and potential filing of dossiers or reactivating the dossiers, what we would have filed long back? Or what is the thought process here for Ipca as a whole U.S. business?

Let's say, there are certain products where there are no updates in the files, let's say, which are required. So those are around 8, 10 products can start quickly after the supply chain -- after the validation, again the process because we have not there in the market for almost around 9 years. So we will have to do the revaluation of the processes and all, the entire products. So that process can start. On other dossiers and other approvals, let's say, API processes has changed where we are cheaper processes that processors need to integrate into our dossiers because those works are not done. So that work will -- is required to be done. So that process also, we are initiating at our end. So that will take some time. But let's say that earliest we can be there in the market is in the -- only in the first quarter of next financial year.

Just 1 bookkeeping number update. See, here, the tax number with the integration, what is the ETA that we are anticipating for, let's say, current year and next year after the integration, sir?

You want to know about the tax?

Tax rate -- integrated tax rate after integration.

Let's say -- I would say that as far as Unichem is concerned, there are no disallowances are there because they are not there in domestic market. And so their tax rate will remain around 25%-or-so. There will be not much of a change. As far as we are concerned, it's mainly -- largely the tax rate is going up because of disallowances like, say, CSR costs get disallowed, any donation given that gets disallowed. And marketing costs, large part of marketing costs also get disallowed. So that figures the overall -- because of that, I feel that -- we have made a provision for the tax at almost around -- which include deferred tax at around 34% as against normal tax rate of around 25% plus some deferred tax of 1%, 2%. So as against that, so tax may be on higher side because of the disallowances by almost around 6% to 7%, yes.

[Operator Instructions] Next question is from the line of Chirag Dagli from DSP BlackRock.

Sir, of the products -- of the 8 to 10 products that you talked about for the U.S. market that can immediately come in the market, what is the market opportunity of these approved products here? Because the last time you -- we were in the market, we were doing about $35 million, $40 million. But since then, there could have been price actions and plus this time around, we have our own front end as well and not necessarily supplying to a partner. So if you can just give us a sense of what is the market opportunity? And what should we expect in the first 12 months in terms of revenue from the U.S. post us coming into the market?

Yes. Chirag, the initial products will be same product in which we were there earlier in the U.S. market. And as far as the pricing is concerned, in our product range, there is hardly any reduction in the prices in that market. So when we were there, we were sharing almost 40% to 50% profit with the marketing partner. Now that issue is not there. All our products henceforth will be distributed through Unichem franchise.

And Bayshore as well, right?

Bayshore also operations we are integrating along with the Unichem now.

Okay. So...

Label will remain, but operations will be handled by Unichem.

Understood. So -- but the way to think about this is that 100% of the economic interest will be with Ipca? Or how will you share with...

No, no. Economic interest is always with Ipca because we are holding all ANDAs? See, it is like earlier, we were doing business through marketing partners, right? There was Sun Pharma, initially, it was Ranbaxy. At that time, there was a formula transfer price in which we have certain margin. Then sales in the U.S. minus our transfer price minus certain percentage of sales as selling and distribution costs, which we will also give to Unichem because it is a [ fair ] percentage and remaining profit we used to share in the ratio of 40-60 or in some product, 50-50. So only the profit sharing ratio may change. Otherwise, the economics will not change.

Understood, sir. And would you say that pricing action has gone up or has gone down over the last decade?

More or less, we are confident whatever margin we were doing that time. So that will improve because there won't be profit sharing.

Understood. And like you said, 50% you were sharing with your partners...

That is right, yes.

Correct. And sir, can you indicate the number of pending ANDAs we have?

There is no change in that scenario. We have not filed any new ANDAs. Incidentally, recently, we got approval for 1 more ANDA, ondansetron. Post all this VAI for all the facilities and all, 1 ANDA approval also we got.

We expect a good number of approvals immediately after the Pithampur import alerts are lifted because Pithampur is already VAI. So import alert lifting method a few days or weeks maybe. Thereafter a good number of ANDA approvals will come because...

Because all later part ANDA filings were from Pithampur.

And I think we have almost around 18 approvals and around 26, which are...

Filed and pending approval.

And of these -- the ones that you are expecting approval of Pithampur, how many will those be, sir?

Most are -- most of them are from Pithampur only.

See, initial all filings were from Piparia. Most of them are already approved. Most of the subsequent filings, which are now pending approval, they are all filed from Pithampur.

Understood. So sir, if I were to take a slightly longer-term view and I understand you will take time. FY '25, we'll likely spend -- scaling up our existing products. But if I were to take a slightly longer-term view, do you think this can be a $100 million business, maybe $200 million business with the existing product...

It is very difficult to comment on the numbers, no? But actually, when we were there in the U.S. market, our API plus formulation business put together, including indirect API sales, people are buying in India but end formulation was going to U.S., all that put together was about INR 500 crores -- INR 450 crores to INR 500 crores.

Understood. And just the last question...

That has with the limited number of products. That time, you were marketing about 9 to 10 formulations.

Understood sir. Understood. And now with Ratlam getting open for the U.S. market, is there -- are there any products where you -- where your realizations are substantially better in the U.S. market and hence you can immediately move...

We were not there for 10 years. We have to now start seeding business. It will take a little bit time because all my customers are already with -- currently with some other supplier, but we will start that process also. But whereas our efficiency -- our cost efficiency and all, it is intact. Leadership position, there is no change in that. We are confident we will regain all those lost business in due course of time.

Nobody is waiting for us so we will have to create the market. So it will take time. Right now, we are not in a position to give the numbers here.

[Operator Instructions] Next question is from the line of Saion Mukherjee from Nomura.

Yes. Sir, how are we thinking about the U.S. business in terms of filing? We have not been filing and what implications on R&D platform or R&D expenses that you see should happen over the next 2, 3 years?

Saion, in the meantime, we have also developed several formulations. We did not do any filing because it was entailing filing costs and all. So now we will increase our filing pace also. . So as a group, we will have a lot of ANDAs now in the U.S. Unichem itself is having 60, 70 filings plus we have our filings, and we will increase the filing speed going forward.

And so that will have any meaningful implication on R&D expense?

Definitely. So when we were there in the U.S., we were developing product, filing products, our R&D cost was around 5% to 6%. Maybe slowly, we will -- we are now currently around 2.5%. Little bit increase will happen, maybe up to 4%-or-so.

Okay. And sir, how many ANDAs -- have you always decided like how many ANDAs you would be filing going forward?

See, basically, our filings are going to be based on our own APIs. So we are currently producing around 70, 75 APIs, out of which, around 46 are filed. So it's going to be -- the balance APIs, we will look into the filing ANDAs. More APIs are commercialized, more filing will happen. So we are not filing the more number of products based on somebody else API. By and large, it's a -- U.S. market is going to be more integrated kind of business for us. So it's not that we have to file a significant number of the formulation. That's the practice, which is the Unichem also have -- they are also integrated operations and Ipca also integrated operations. So by and large, wherever VAI API -- good API processes, that will only be taken out for filing. R&D cost is not going to have a significant impact. It did not go from 2.5% to 6%. It's going to remain around 4%.

Okay. And sir, I also see that you are making some efforts on the biosimilar front. Anything that you would like to share? How are you planning? What are the products? How are the spends? Are they already sort of coming in or we will see some increase because of clinical trials, et cetera?

Currently, I think the plant is under construction. It may take, I think by, let's say, end of the first quarter next year to -- for plant to complete and thereafter the validations and all. We are currently working on almost around 5 products. And for 2, we have already taken the IMA, U.S. FDA and European authorities guidelines and clinical strategies on that has been finalized. Third is in pipeline. So the 3 products are already at those kind of state. But the commercialization of that will happen from the plant. So any commercialization, the efforts will only start after the plant is ready and then -- so it's still far away, but the current R&D costs also include the biosimilar kind of cost, yes. And on own products, the development of clone is in-house. We are not taking clone from anywhere from outside.

Right. And sir, this pipeline that is selected. So when you enter the market -- so you would target Europe and U.S. at some point, right?

Yes, yes. It's a product to product. Yes.

So these products -- so we are looking at, what, '27, '28 kind of timeframe? And are these products...

After the plant is ready, it may take around 2.5 years to -- that's the kind of period for the initial batches and thereafter the -- all these establishment batches and then bio -- development taking the batches and clinical studies and all that. So that's the kind of time after the plant is ready and everything is done around 2.5 years. So it's still a long journey.

Okay. And sir, the pipeline that you have selected, is it you're targeting the first wave launch? Or you are -- those are the ones where you see you have a cost advantage and you're going for it despite some of them may have already gone generic some time back?

Looking at our R&D presentations and all, we are getting the [ TATR ] values are much higher than currently what market is getting. That's what I can say, but I cannot give the name of the productions right now.

Next question is from the line of Abdul Puranwala from ICIC Securities.

Sir, can you provide a rough split of the India business between the various therapies and how that has grown in this quarter?

See Pain segment has grown by almost around 12%. The other therapies like, say, your Cardiac has grown by 13%, CNS 22%, Derma 17%, Urology 23%, ophthalmology 38%, other products by around 10%. The product which has declined in the quarter is antimalarials, has declined by 4%. Antibacterials have declined by 2% and cough and cold has declined by 5%. So that's the overall number. So the second quarter was the toughest quarter. I think overall market growth was also around 7%-or-so. We have grown by around 10%. First quarter, our growth was [indiscernible] %, much higher compared to market. But we are seeing now markets -- domestic market revising overall. October was good and November is also appearing to be good. So overall -- therefore, we are not changing the overall guidance for the year. We will continue to have around 12% to 14% kind of growth on domestic market. First half, we are at 12% overall domestic growth.

Sure, sure. And sir -- I mean, a couple of quarters back, we had added some MRs. So I mean in terms of the MR breakeven or the productivity for those considering that the market has slowed down a bit. So where are we -- I mean, are we still on track of breaking even in 2 years or given the current market circumstances, do you think that, that will take some time?

I think if you look at last year, my overall MR productivity were 418,000, per month. And after the addition of people also, I'm currently at around 453,000 kind of productivity in the first half of the year. That's the overall productivity. Productivity has definitely improved, and this is overall -- this includes the newer products. But let's say, the people which we have added in kind of the Cardiac businesses and all that take a longer time compared to the other businesses. Like say, we have started one cardiology division, which we may be at currently around -- after 1 year, we are at around 1 lakh productivity. But the growth is better. The other division we have around -- because in that division, certain products was transferred and all. So that's around 2.5 lakh productivity. But for people we have added in your rheumatoid arthritis segment, that has given very good productivity and almost they are around 4 lakh kind of productivity now. Certain products were transferred and certain products were added in that market. But that has not reduced the productivity of the Activa division, which was earlier marketing, and that is also going up as the productivity level is almost around 930,000. So that's a good productivity. Overall, Urology has also done well. Productivities are good over there.

Sure. Understood. And sir, a final one, if I may. Sir, with the U.S. plant getting cleared, sir, is there any plan ahead of sourcing income, CDMO molecules from the subsidiary, which can be scaled up to this plant and catered to the U.S. market?

No, no. Presently, those things are not considered. So initial our work is to launch the products, which were already there in the market when we went out. So gradually, we'll look everything.

Next question is from the line of from Tushar Manudhane Motilal Oswal.

Sir, just on the U.S. piece again, so what would be the current capacity utilization for Ratlam plant, Piparia and Pithampur?

Piparia, it will be around 15% to 20%. Pithampur may be around 30%. Ratlam, we are having certain specific plan for specific products where there is a capacity available. In any case, now we are gradually scaling up production at Dewas also. That plant also ultimately will be offered to all regulatory agencies inspection. So availability and manufacturing of API should not be any issue.

Understood. But at the same time, even from our external API sales perspective where there is volume decline for sartans, so how are we looking...

There is not so much decline in volume, but price decline is very severe from $100 to about $50 in case of Losartan.

Okay, sir. In fact, that is -- the other part of the question is that what new API molecules are we looking for growth in API business in specific?

Across all our products, we are [ seeding ] across the growth. So we have seen good business progress. Many projects are now getting commercialized. So there is no issue in growing the API business. Only issue is about pricing. Other than that, there are no concerns.

Got it. And just lastly, we had this metoprolol filing as well on the U.S. market...

It is filed -- it is pending approval. There is no change in that status.

Next question is from the line of Damayanti Kerai from HSBC.

Sir, my question is on your margin trajectory. So a lot of cost initiatives happening at Unichem portfolio as well as your own. So like second quarter number includes 2 months of Unichem business. Looking ahead how do you see costs like dynamics changing? And how do you see margins, say, in near term and then in slightly longer term in terms of like trajectory movement?

Damayanti, Mr. Jain has already explained what initiative we will be taking as far as Unichem is concerned. As far as Ipca is concerned, more or less, in the second quarter, if you see our financials, whatever guidance we have given, actually, we have done better than that. So there is an improvement in the stand-alone EBITDA margin from 18.85% to 20.86%. It is nearly 2% in Q2. Similarly, in consolidation, there is 2 months Unichem sales that have come in. In spite of that, there is an improvement in the EBITDA margin from 17% to 17.64%.

Okay. So...

And we are confident of telling -- assuring the investors, our EBITDA margin going forward should improve at least by 100 basis points year after year.

Okay. So at least 100 basis point improvement for year? That's good to hear, sir. And then I wanted to check update on the Dewas plant. You said it is yet to be offered to agency. So what is the time line? Like when you are planning to invite some major regulators and the...

Initially, we have started developing API. Some products are already developed, then there is a process stability and all. So it will take time.

Okay. Not in this fiscal for sure, right? Maybe...

Not, near future. It will take time.

So we have filed the products to various regulatory authorities, dossiers are filed so...

When they come for inspection -- so again, all that involves some time.

So filing has already started from there, at least -- almost around 6, 7 APIs, which are scaled up there. Filings are in process now. A few filings are already done. . Europe does not take a very long time to come for inspection. Maybe it's a time lag of almost around 5 months -- 5 to 6 months they come. So hopefully, by this yearend or early part of next year, the inspection should happen from Europe. U.S., we are yet to file. So once Europe -- I think, 5, 6, all these happen, then we will trigger based on our own process -- the inspection of -- from the U.S. also because we will utilize the Dewas API also for our formulations -- the newer APIs. So we will trigger that kind of inspection from there. But when inspection will happen, that's not in our hands, yes.

And sir, my last question is...

Drug inspections and other inspections can start early.

Okay. Got it. And sir, my last question is, like you were working on this continuous process plant for some specific case and et cetera. So any update there, like how that has moved and what kind of margin accretion you are seeing or foreseeing for such continuous [indiscernible] base products?

We have installed 1 plant in last few months at Aurangabad. Earlier, we have put up a pilot plant, and now we have set up a buffer plant for 1 intermediate. So that I think may kickstart commercial production somewhere in end December or so. So from next quarter onwards, then we'll -- after we get all the results of that, we will talk to you that what kind of reductions are coming. So -- and other products, by and large thereafter, we've taken up at Nagpur. So we are still awaiting some kind of -- we have got the environmental clearance, but the consent to start is still pending from the State Pollution Control Board, so we are following with that. And thereafter, the -- all the continuous process plant of that type will set up. We will set up at Nagpur. That's the -- and this plant doesn't have very high investment with continuous process plant. Every plant maybe set up maybe around INR 20 crores, INR 25 crores. It doesn't take very long -- very, very big investment. So that's going to be an advantage in that [indiscernible]. Overall capital cost will come down.

Next question is from the line of Pulkit Singhal from Dalmus Capital.

Just question on Unichem. I mean, broadly, when you look at the U.S. opportunity from 3 to 5 years out, you obviously alluded to the cost synergies and the market extensions. But when you think about addressing that opportunity, are you looking to invest in the Unichem business to do more new product developments? How do you decide what will be done here versus Ipca or will these 2 be very independent growth engines? Just a broad thought process 5 years out.

Both are the separate growth engines, but marketing will happen through -- in the U.S. through your Unichem because that's a much better established business. The Bayshore was small outfit and therefore, we are -- both business, we are -- we will be combining there, and we'll keep only 1 marketing outfit instead of 2 marketing outfit to reduce all the operating cost of that level. So -- but otherwise, both will be separate engines. The Unichem's R&D team will separately -- they will report to their Managing Director and -- but overall, the selection of products and all, we will guide them in terms of that which are products -- Unichem team is taking up which products. And they already have their pipeline and all, so they will continue to work. But first focus will be given on the low-hanging fruits, like say, process correction, which -- Mr. Pabitra Bhattacharya is the Managing Director, and he is bit of a technocrat and he is guiding the team in terms of -- and their R&D is now being dedicated to correct those kind of processes and all that so -- which all action plans have been, right? And then market extension which can give us a faster generation of revenue and also profitability. So those kind of things are our plan so that we turn Unichem into profitability. That's the first goal. So I said that next 2 years, almost around 80% of time, R&D will devote only on the improvements and 20% on the new developments. Once these major APIs, these corrections are happened, then only the new developments will be focused. So -- their R&D cost will not be that high because -- of course, bio cost will be there, but the other material costs and other things will be on lower side. But thereafter, the -- again, they will take up the development of their APIs.

Understood. Second question is, broadly, you had given a guidance of INR 1,800 crores of revenues and INR 300 crores of EBITDA. Obviously, you have a much better understanding now having probably evaluated further. I mean the company is already doing almost INR 1,700 crores of revenue. I mean, even now if you just analyze the first half. So how do you see that trajectory changing over the next 3 years? What is the peak potential in terms of revenue growth itself?

Actually, when we gave this projection, their annual turnover was around INR 1,300 crores. Suddenly, this year and the last 2 quarters, they have seen a lot of opportunity in the U.S. because of shortages and all. So that is why there is a sudden jump in their U.S. generic business. Having said this, they also have a product pipeline. They will be commercializing 2 ANDAs, which are already approved in this financial year as well as the next financial year.

And their Brazil business has started doing -- which was earlier cash burning business. They have started doing well. I think this year in first half, they have already grown by almost around 65%. And they have good pipeline of products where some of the sartan journey we will integrate with their approvals announced. So we see a good future even from Brazil in that market. We see good revenue generations and all in -- from their European business point of view. So...

Understood, sir. Just very lastly, what do you think is the peak revenue potential for this entity? And how many years can it take for you to reach there?

Let's say, we are -- let's say, their -- Ghaziabad plant, I think their production capacity is almost around 200 million tablets. That plant, we have some kind of working is done and that production capacity by certain changes in -- it can go up to 270 million kind of tablets. As far as Goa plant is concerned, the first plant capacity is around 500 million tablets. That can go up to 625 million, doesn't need any kind of investment. It's only the internal some changes are there. As far as their third plant, is there in Goa 2, which beautiful plant and it's for scale up. So we are planning a lot of much bigger size ventures there and all that. But that will all go through the whole regulatory process of approvals and all. A lot of things may not happen through CBE-30 process. It's a cost approval process. So right now, focus is to say, bigger volume products to be shifted to Goa 2. Goa 2 also has almost around 500 million tablet capacity. So capacity-wise, there are no constraints as far as Unichem are concerned because Goa 2 capacity is practically utilized a very, very small. Today production volume may be around [ 50 ] million tablets and all. So it's a more scale up basis to be taken products where larger products to be shifted to that after regulatory approval. So it may take around 1 year time to do that journey, and that will also result in a lot of cost savings. So that also free up their lot of capacity there. And therefore, we target the next 3 years what kind of the new products they can launch and all that. And on those products also on the API side, we are looking for cost reduction. So their ANDA will have to be upgraded again once the -- API has to be qualified in those ANDA. So that process is all mapped and workings are going on, but it takes time. That's the only thing that in pharma business, everything has to go through the whole process and thereafter approvals and also -- so that's why we have divided things in 2 parts. One is low-hanging and can that be done immediately and 1 maybe 12 to 18 months and thereafter the results start coming up. So that's the journey.

Next question is from the line of Rashmi Shetty from Dolat Capital.

Yes. Just 1 clarification, whatever guidance you have given for the branded business and your generic business, that includes the Unichem integration sales also?

Unichem doesn't have any branded business. Whatever guidance we have given for Ipca, it is a stand-alone Ipca. We have not considered anything of Unichem in that.

Okay. Not even in your generic portfolio, there you have upgraded it by 20%?

The guidance given out for current financial year. Next 6 months, we can't do anything much as far as Unichem portfolio is concerned. This guidance what we have given is our own portfolio, our own business.

Understood. Okay. And what is the status on borrowings for this acquisition and what is the cost of debt?

Our current net borrowing is around INR 800 crores. Cost may be around 7%. You know there is also increase in the borrowing cost. Earlier, most of our borrowings were in foreign currency. We were paying about 1%, 1.5%, which has now increased to about 7%.

Overall gross borrowing is around INR 1,600 crores, but we have almost the balance, as a cash in the balance sheet, around INR 800 crores...

So net borrowing is around INR 800 crores.

Net of cash is INR 800 crores.

Understood. Sir, just wanted to understand more. So when you said that currently in your guidance, you have not included Unichem integration. So you're saying that for -- the integration process will take time and therefore, the sales from Unichem will not immediately come in next 6 to 8 months. Am I correct to understand this?

Whatever Unichem is doing business, their businesses have also grown in the current financial year by almost 35%. So this guidance, what Mr. Jain said, is of stand-alone Ipca business, which was [ going ] business. We have not included immediately anything out of Unichem product in our books so far. That will take time. So Unichem, per se, their businesses have grown from INR 1,300 crores last year. They are growing around 35% in the first half of the current financial year.

Next question is from the line of Rahul Jeewani from IIFL Securities Limited.

Yes. Sir, you indicated that you will recommercialize your U.S. portfolio through Unichem's front end. So when that happens, would you be booking the sales or the sales would be booked at the Unichem level?

Stand-alone, we will book in our books. It is an export business to me. Similarly, Unichem U.S. will also book in consolidation. It will get adjusted.

[Technical Difficulty]

Hello? Your voice is breaking.

Yes, sir. I'm saying then it will reflect in Ipca's stand-alone books as well?

Of course, because I am manufacturing and I'm selling it to Unichem U.S. So it will reflect in my books as sales stand-alone. Whatever Unichem is selling in U.S., it will reflect in Unichem U.S.A. book. But when we do consolidation, it will get adjusted.

Okay. Sure, sir. And sir, any plans of merging Unichem into Ipca through a share swap?

No, no. Currently, nothing on board.

So both the entity.

For Unichem, we have to bring their businesses. We are focusing only on Unichem business now, nothing beyond that.

Okay. So both the entities will continue to remain separately listed?

That is right. Yes.

Ladies and gentlemen, as there are no further questions from the participants, I would now like to hand the conference over to the management for the closing comments.

Since there are no further questions, I think we should end this call.

And Happy Diwali to everyone.

Happy Diwali to all the participants. Thank you.

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