J. B. Chemicals & Pharmaceuticals Limited (506943) Earnings Call Transcript & Summary

[Audio Gap] everyone, and a warm welcome to you all. My name is Anuj Sonpal, CEO of Valorem Advisors. We represent the Investor Relations of J.B. Chemicals and Pharmaceuticals Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings conference call for the third quarter and 9 months ended financial year 2020. Before we begin, I would like to mention a short cautionary statement. Some of the statements made in today's con-call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings conference call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Now I would like to introduce you to the management participating with us in today's earnings conference call and give it over to them for their opening remarks. We have with us Mr. Pranabh Mody, President; Mr. Jay Mehta, President of Global Business of Russia and CIS and CAM; Mr. Nirav Modi, President of Global Business and Business Development; Mr. Vijay Bhatt, Vice President of Finance and Accounts; Mr. Mayur Mehta, Company Secretary and Legal Head. I now request Mr. Vijay Bhatt to give his opening remarks. Thank you, and over to you, sir.

Good morning, everyone. I thank you all for participating in the company's earnings conference call. Let me start giving -- start by giving you a brief introduction about our company so that we are all on the same page. As you may be already knowing, J.B. Chemicals and Pharmaceuticals Limited is a conglomerated -- conglomerate incorporated in 1976 under the Chairmanship of Mr. J.B. Modi. Since its inception, the company has established various brands, not just in India, but globally as well. With presence in more than 30 countries, the company is well known for supplying quality products, spread across chronic and acute therapeutic segments like cardiovascular, gastro and the infective pain management. We manufacture a wide range of dosage forms like tablets and capsules, injectable, creams and ointments, lozenges and liquids. The company's manufacturing facilities are located in Gujarat and Daman, and we also have U.S. FDA-approved tablet and API plants. Our domestic business, which comprises our branded generics and contrast media, contribute approximately 45% of our consolidated revenue. Our international business contributes to the balance 55% of revenue and comprises of branded generic, contract manufacturing, ANDS and APIs. Now I would like to summarize the key financials for the third quarter of FY 2020. Our consolidated net revenue for the quarter was around INR 420 crores, which grew by 12.7% on year-on-year basis. Our operating EBITDA in absolute terms for the quarter grew by 15% to approximately INR 89.6 crores. And operating EBITDA margins were around 21.3% as against 20.9% for the same period last year. The company reported net profit of INR 66 crore, which grew by 33% on a year-on-year basis. Our sales growth was driven by our domestic formulation business which grew by around 14% for the quarter-on-quarter on-year basis and also the branded generic exports, which grew by about 17% on a year-on-year basis. While our other business, which are relatively smaller, grew cumulatively at about 6.5%. The EBITDA margin for the quarter improved against the same period last year, primarily due to cost optimization. For 9 months ended financial year 2020, our consolidated net revenue was around INR 1,331 crores, registering a growth of 9% on a year-on-year basis. Absolute year-to-date operating EBITDA reported a year-on-year growth of 19% at INR 285 crore, and EBITDA margin stood at 21.9%. Net profit for the company increased to INR 222 crores, reporting a growth of 51% on a year-on-year basis. Lastly, I am pleased to inform that the company completed its buyback of approximately 29 lakh shares. Additionally, the investors are aware that the company has trademark licensing arrangement with Unique Pharmaceutical Laboratories Limited, under which company has licensed several brands named under Unique logo and company has been annually paying restricted royalty of about INR 10 crores for the last several years. Unique Pharmaceutical Laboratories has agreed to sell and the Board of Directors of the company has approved to purchase the entire trademark portfolio of Unique Pharmaceutical Laboratories at onetime consideration of INR 8 crore. This transaction will be consummated before the end of this financial year. Consequently, the aforesaid licensing arrangement will stand terminated as such, and there would be no royalty payment beginning next financial year. And hence, this would be an EPS accretive to J.B. Chemicals and Pharmaceutical Limited from next financial year. With this, I would like to open the call for a question-and-answer. Thank you.

[Operator Instructions] The first question is from the line of Sriraam Rathi from ICICI Securities.

Congratulations on a good set of numbers. So firstly, just one thing is that in that growth this quarter was around 13.7% versus first half growth of around 17.5%. Though 13.7% is also good growth. Just want to understand, I mean, has there been any impact of ranitidine, any temporary issue in between during the quarter?

Yes. So if you look at our growth, ranitidine has been impacted. Ranitidine for the quarter was more or less flat as compared to the other business groups. There is a bit of revival towards the -- December, but still there is a bit of challenge on the ranitidine business.

Okay. Okay. So is it possible to attribute how much of the growth would have been impacted because of that in this quarter?

No. At this time, ranitidine business is more or less flat for the quarter.

Okay. Okay. And sir, I mean, do you see any kind of opportunity to potentially gain some market share because one of the largest player has already exited for the time being?

We'll -- let this whole controversy kind of die out before we can really make any statement, because tomorrow, you never know, they may come back. So at this time, it's difficult to kind of say anything.

Okay. Got it, sir. And secondly, sir, the other expenses, other operating expenses, has been quite flat year-over-year and is down actually quarter-on-quarter. So what is leading to that? Are -- I mean is there any cost control that we are implementing? And how do we see this trend going forward?

Yes. In fact, your observation is good and correct. There are some drive, which management has taken over consciously, which has helped us. So we hope that this will continue going forward. This year, it has shown good results. And that's how the numbers are, more or less same as last year. So there is no growth over the previous period in the 9 months as well as in the quarter also.

Okay. Got it, got it. And so what is the net cash position now as on 31st December?

It's about INR 580 crore.

The next question is from the line of Ankit Gupta from Bamboo Capital Partners.

Can you please talk about the MR productivity gains in the activities in the MR increase activity that we took a few years back? So have we reached the optimum level that you were looking for? Or is there still a lot of room for improvement from here on?

No. So since we've done this whole restructuring and we've had about 100-odd people during the last year, so we believe that each of the business units have enough opportunity to grow. So the activities within the company will be continued to enhance productivity, because whatever revenue growth we get, it'll going directly to the productivity. So we believe that there is still opportunity because there is still good opportunity to grow the revenues.

Okay. [Technical Difficulty]

Sorry to interrupt. [ Ankit ], your voice is not that clear.

[Technical Difficulty] So what -- the growth between chronic and acute segment during the quarter? And [Technical Difficulty] higher growth during the quarter?

So the acute has been growing by about 20%-plus the -- sorry, the chronic has been growing by about 20-odd percent. The acute is a lot lower, obviously, because of the ranitidine issue. And yes, so it's a combination of both acute and chronic.

The line for the current participant dropped. We move to the next question. The next question is from the line of Tanush Mehta from Dalal & Broacha Stock Broking.

Sir, can you just speak about the royalty part that you said in the opening remarks?

So basically, there were certain brands which were owned by Unique Pharmaceutical Labs, which was a promoter company. And J. B. Chemicals was paying a royalty on the sale of these brands. So in order to kind of make things a little more clearer and transparent, we've gone ahead and Unique Pharmaceutical labs has agreed to sell all -- the trademarks to J.B. Chemicals. And hence, that royalty in turn, which is -- which was about INR 10 crores per year is no longer, will be paid by J.B. Chemicals going forward.

Okay. Okay. And sir, my other question is that initially about ranitidine -- so we had -- we didn't find any issue in our product, then why is it that we're having a slowdown there? Or why are we having a flattish revenue there?

Sir, the WhatsApp message, is all the negative news, spread very fast then as compared to the good news. So before even anyone could come out with an analysis, I think the amount of news that has been spread through social media has had impact. Two is, if you see in terms of ranitidine, there are basically 3 large manufacturers, which are Cadilla, GSK and ourselves. And obviously, the competition, which is the PPI, you have about 10 to 20 different companies. So the noise level also put in by the competition is fairly large. So here, we need to reestablish ourselves. Good news doesn't spread as fast as the bad news. But this is a constant effort that, as a company, we'll have to continue to do to bring things back.

Okay. And sir, my last question would be, so how is the contract manufacturing business going?

So obviously, we are working with a few MNC companies, and we have -- the business is growing. Obviously, we have had certain issues because of one of our clients in Russia, because how the Russian -- because of the concerns in the market there, but we believe that should change in the year going forward. Obviously, we are adding newer clients to the basket, so that should help in the growth in the coming year.

The next question is from the line of Ujwal Shah from Quest Investments.

Congrats on a good set of numbers, sir. Coming back to Rantac, you did mention that we are seeing some positives coming at the end of the quarter. So is it that we have -- doctors are now again looking at Rantac for prescription? And how do you see the year ahead? And also, are we looking at exporting Rantac because GSK has any which ways stopped production globally is what we understand?

So first is, today, when we talk to doctors, ranitidine has been in the market for the last 35 years. And across the board, you would -- you can talk to any doctor, most of the -- all the doctors really have a comfort that the product is basically relevant, important and needs to continue. Currently, the controversy that has been created for this impurity. And if you see the working behind it, the level that today, U.S. FDA is talking about, which they've said, what it means is that today, if a patient takes ranitidine continuously for 70 years, 1 out of 1 lakh patient has the probability of generating cancer. Now these are the numbers that actually what [Technical Difficulty]

Hello?

Yes, sorry. So what I was -- 1 out of 100,000, 1 lakh patients, has the probability of generating cancer. So the probability itself is low. MDMA is a normal impurity that's present in foods, et cetera. So we've been able to fairly convince the doctors the probability of really anything adverse is happening and their own experience supports that. So see, the doctors are there. But today, there is a bit of fear in the patient's mind, which is due to all the social media that has spread quite a bit, and obviously, competition is playing its part. So the revival will happen, but I guess how soon it happens, time will only tell. It's difficult to predict. But we are seeing a slight improvement in the last 1 or 2 months.

Right, sir. And the export opportunity, if at all, if we are looking at?

So we have ANDA approval for ranitidine tablets in the U.S., but we've not launched it yet because of the whole MDMA issue. So the FDA is working with the API supplier. So the API supplier has to reply to their queries. And once those queries are satisfactorily answered by the API supplier, and then FDA communicates to us, then we'll be able to launch it in the U.S. But until then, even though we have the approval, but we've not launched it yet at all. In other markets also, wherever there's been an issue, we've stopped supplies there, but that is very small in the other export markets.

Sure. Secondly, sir, we have seen very strong growth on domestic formulation last year as well as these 9 months. How do we see higher domestic business shaping up for FY '21? What would be the growth levers for that? And even the margin performance has been really stellar, how much more margin expansion is possible? And what is the management targeting?

So again, we've been growing. We hope to maintain the trajectory. Obviously, this trajectory has come because of the expansion. And as we now -- productivity keeps increasing, obviously, there could be a little bit of a slowdown there. But clearly, we will grow faster than the market, and we're very confident on that. As far as margins is concerned, at this time, we assume that they will remain flat going forward because there may be a couple of expansions that we may do in the coming year.

Sure, sir. So what are the CapEx plans for next year as well as by this year end? Are we looking for...

As of now, there are no major CapEx plans that we are having. Probably it would be more on regular maintenance CapEx, which would be in the tune of about INR 40 crore to INR 50 crore annually.

Great, sir. And lastly, can you throw some light on our Russia business as well as South Africa business, in light of how things are shaping up over there, private market, tender market as well as in Russia, we have started direct supply. So how is that shaping up for current year as well as next year? How are we looking at things?

So the Russia CIS markets, obviously, you know the concerns around the market there and because of the sanctions that are there on the country. So obviously, the market is not growing at a very fast pace. But we have a limited set of products which are registered there. We are in the process of registering a few more products. So -- going forward, we believe that, that should change once we have these approvals in place. For the -- now the CIS is something similar, where obviously there's a lot of turbulence because they are also quite dependent on Russia. So they are also going through that churn. So we believe that we will see a bit of issue in those markets, but that should hopefully change in the next 6 months to 1 year down the lane.

How many products we have in Russia? And how many are under filing?

So we have about 7 to 10 products which are currently registered. I'm not talking of the SKUs in the product, but I'm talking about just products. So 7 to 10 products which are registered. And we have about 4 to 5 products under approval, which should come in this year.

Great. And thoughts about South African market?

Yes. South Africa has done well for us over the last 12 years. We entered the market first. We've grown at a CAGR of about 15% year-on-year. So I think that trend should continue. Private market continues to do well for us as well as the public tenders also do well for us. So I think South Africa is a focus market for us going forward, and it'll continue to do well.

Just on the -- for the Russia subsidiary, for the first 9 months, we've registered a growth of about 21%.

[Operator Instructions] The next question is from the line of Kunal Randeria from Antique Stockbroking.

Firstly, on the domestic market. So our 4 big brands have been the main drivers for growth, and these are showing really good growth. So what's your strategy in the coming years to look beyond these? Or you see enough headroom in these brands itself?

So in each of these divisions, we have these brands which are supporting the division and we keep on adding newer products to the division. And obviously, these are very large. The other brands obviously will take a little time to make their presence felt. But the whole idea of the individualization was to create extra headroom for growth, making sure that the existing SKUs also grow as well as our ability to introduce new products. So in each of these divisions, there are new introductions that keep coming up, and we will -- and there is still enough of headroom to grow even for our main brands.

Sure. Sure. And when would the Metrogyl price hike that you've taken start taking -- start reflecting in your numbers?

So there were 4 SKUs. One of them has already started at the beginning of this month. I think by middle of March, all the SKUs, the new price will be in the market. By middle of March, we'll have the increased price strings stock available in the market will be selling those.

The next question is from the line of [indiscernible] from Lucky Investment Managers.

Just continuation of the previous participant's question. We have a product concentration, fairly high. So what are we doing incrementally in terms of getting the product concentration lower? And we had formed these therapy-wise team 3, 4 -- I think, 3 years back, and were trying to address newer therapies. So if you could give us some update there as well?

So again, while we have brand concentration in each of those brands, you will see a number of SKUs. So the -- let's take, for example, in [indiscernible] have almost about 12 to 15 SKUs. And each one has a potential to -- and each one is positioned in the market differently and each one has a potential to grow. Having said that, what I answered to the question earlier was that in each of these divisions, we've also introduced new products, which will help support whatever initiatives we are taking with the main brands. So yes, brands is a strength, clearly, but we now need to use that effectively to be able to generate additional business in the same SKUs, as well as our ability to generate business from new products. So that's the plan going forward. Sorry, you had asked 1 more question?

Yes. What is the update on that therapy-wise team that we had created, if you recall, 2, 3 years back and...

Yes. So the 4 divisions, which were created, which we've announced, and that result is what you are seeing in terms of the domestic performance. I don't know how else to answer that question.

Okay. And in the existing pool brands, the growth is largely, was penetration driven is what...

So compared to 1 large team managing so many brands, now each of the teams manage these brands individually. So obviously, the focus in the therapy improves, the focus with that relationship with the doctors improve. And all that is today what is showing the results for us.

The next question is from the line of Varun Goenka from Nippon Mutual Fund.

Sir, just 1. If you could give us some assessment of our dependence on China API imports, direct or indirect? Maybe our suppliers might have some kind of a dependence also that might be indirect.

Yes. So there are 2 parts. One is the direct APIs that we get from China and 2 would be the APIs where the key materials used -- are coming from China. So we are looking at this entire list of APIs as well as the -- in both the categories. And at this time, the whole plan is to add the inventory if necessary and make sure that tomorrow if things -- the supply chain gets interrupted, at least our business doesn't get interrupted. So the supply chain team is working on that. And at the same time, we look for alternatives. But at least in pharmaceuticals for the main APIs, using alternates, it's a long process. So therefore, switching over is not so simple. So the whole strategy is obviously to pick up as much inventory as we can and hold the inventory so that the -- and our hope is that this issue gets resolved pretty fast. But yes, the plan at this time is to add inventory and keep a higher safety stock.

So what percentage of our imports is from China? I mean if you could quantify a percentage or a value for this financial year?

Yes. I'll answer this. As overall purchases, my import kitty is too small. So out of my total material cost, roughly about INR 100 crore to INR 120 crore is worth an import materials, rest all are domestically procured. But out of this INR 100 crore worth of import that we took, almost 70% to 75% comes from China. So in that sense, major imports are from China.

And have we seen any kind of interruption till now in that, sir?

As of now, no. But it's like the purchase is closely monitoring the developments happening there. But currently, we don't have any concern. We also have built up some safety inventory also.

Okay. Great. Right. I missed the question on what is our CapEx outline, sir, just ballpark CapEx or OpEx...

Roughly about INR 50-odd crore on an annual basis, which is just a maintenance CapEx.

The next question is from the line of Manoj Garg from White Oak Capital.

So congratulations for a great set of numbers. And also I would like to congrats each one into the management because of a great initiative of, a, starting the con-call, which obviously will help us to get a regular update; and second is, buying out the brand from the promoter entity. It will definitely improve and will have a very, very positive impact in terms of the perception about the corporate governance about the company in the long run. So thank you very much for these 2 initiatives.

No, thanks for...[indiscernible]

Yes, sir. So just would like to understand, sir, like in the recent economic survey, I think there was mention of that, what government is realizing, that price control on drugs is more of an inflationary trend than the deflationary trend. Anything you would like to share on this, that is government thinking about doing away with the price control on the medicines or the duties here?

I -- today, the way the government is moving, I can't see. Unfortunately or fortunately, the medicines have always been under price control right from '75. So I would be very surprised if they just remove the DPCO. I think the bigger issue is the government is grappling in terms of the overall rules, regulations, the marketing codes, et cetera. And I don't think one -- they can't just look at pricing without looking at the entirety of the nature of the business. And that I believe will probably be how the government would look at it. But today, in isolation, they will -- I don't believe they will remove the DPCA.

Okay. Okay. And the second thing, sir, like the kind of initiative which you took around 2, 3 years ago in terms of expanding sales force and obviously, driving the penetration. We have clearly seen the force of operating leverage playing out. How much scope do you still think that we have in terms of expanding the further operating margins? And what could be the optimum level of margin which you probably are looking over the next 2 to 3 years?

So I'm not looking at its margins. I'm looking at it more from an opportunity perspective. Today, I have about 1,600 people in the field and 1,600 in relationship to competition is miniscule. So if you ask me what's the potential, the potential is still huge. The issue is, as you are aware, we need to do it more systematically in a manner because what we did in the past, I'm talking about 5 years back, had not paid off. And then subsequently, what we did in the last 3 years is what is, where we are seeing the results. So we'll follow the similar model of subdividing and moving brands into newer divisions. But we still believe that the potential is big, at 1,600 are miniscule compared to large companies who have over 10,000 people in the field.

Sure. And just a last question from my side, sir. If you look at it in terms of [indiscernible] and export, like this year has been a bit of subdued, though the subsidiaries, both in Russia and Africa, they have done well. So any color like you would like to give on that from these exports like which part of the oral business? Is it U.S.? Is it grants, which is just pulling down the growth out there?

Yes. So for the first 9 months, U.S. was slightly impacted because 1 of our ANDAs where the API supplier had some FDA queries, but that is resolved. And so now in the next quarter, for that product, which is a big contributor to our U.S. business, the sales will resume again. So I think going forward, the formulation exports will continue to grow, but what helped us also was some clients of our CMO business as well as the branded generics into semi-regulated markets, which helped the growth. So -- but U.S. will again come back to -- will normalize again in the next quarter.

The next question is from the line of Gautam Gupta from Nine Rivers Capital.

I had 2 questions. One is more of a housekeeping question. I'll start with that. I remember a couple of quarters back, we had decided to not use the way subsidiary anymore for our Russia sales. So I just wanted to know whether we will be winding up that subsidiary or do we have some other use for it? Because we also had, if I remember, about INR 90 crores, INR 95 crores of investments in that balance sheet.

Yes, I'll just take this. As of now, there is no plan of winding up this company because we already have an investment of my South Africa entity and that entity [indiscernible] So there is no business significance of any benefit of winding it up, maybe at later date if situation changes, we will revisit that.

That's good to know. Second question was if you could comment on new product launch and new market entry plans over the next 12 to 18 months? Any broad road map for us?

So if we look at it from a domestic niche of the divisions, we've introduced some new products. So let's take in the cardiovascular, we've introduced the ARPs, which is [indiscernible]. We've introduced a beta blocker, which is [indiscernible] We've introduced a product team, the wound management, [indiscernible] is the brand name, probiotic has been introduced, pain reliver. So across each of the divisions, there are products which we've introduced, and these opportunities are large enough for us to be able to build around them. There are a couple of line extensions that we are also looking at in each of these large brands. So these would be broadly some of the new products.

And just in terms of markets, I think the current markets are where we'll focus on? Any new market that we're looking at globally?

No, our focus is going to be on the current markets where we already export to: South Africa, Russia and the semi-regulated in U.S. So that continues to be our focus, and we put all our efforts in that.

The next question is from the line of Karanveer Singh (sic) [ Ranvir Singh ] from Sunidhi Securities.

I'm Ranvir. Sir, just some royalty part. This INR 10 crores royalty related to domestic business only, it's an overall business?

It's an overall business.

So going forward, the ANDA would be now on J.B. Chemicals' name or Unique will continue to have...

They are already in the name of J.B. Chemicals. The royalty was not on those ANDA. The ANDA were held by J.B. Chemicals, even earlier also.

Okay. So going forward, also the same arrangement will be made there?

Yes. Yes.

Okay. And on an overall basis, in domestic market, what has been a contribution of new product launches?

At this time, it would be around 10%.

And it came in due to price hike?

Sorry?

Growth due to price hike, how much has been the contribution of hike in prices?

So today, this overall, about 15% business. Price hike is around 4% to 5%, and there's a volume growth of about 9%. And I think new introductions would have added 3%, 4% in the growth -- 1% or 2% in the growth.

The next question is from the line of Hari Belawat from Techfin Consultants.

Very nice results and the buyback of the shares by the company as is reflected in the share price also in the market. It's a good development. Sir, any more plans for the buyback of the shares? Or you have already surplus funds of around INR 500 crore or something? Or is this complete now, buyback issue?

No buyback can be done for another 12 months. So after this buyback, I guess we'll visit this at the appropriate time. At this time, really, there's anyway nothing more we can do.

Okay. Okay, sir. One more, just a query. This is domestic contrast media. Sir, what is this product? And...

So basically, these are dyes that are injected during an MRI, during an angiography, during a CT scan. So they're iodine-based products, which are used for investigative purposes in cath labs and in MRI centers.

Okay. Thanks for the good growth there. Just 1 more related thing. This global business ROW was INR 156 crore, how much is the U.S. impact?

The U.S. is about INR 40 crores.

Okay. So dependence on U.S. is really less. That's why I think it's showing good results to the company?

Yes, yes. Our dependence is less. So it's not -- we are not heavily dependent in U.S.

The next question is from the line of Rohit Balakrishnan from VRDDHI Capital.

Hello?

Yes. Go ahead.

Sir, you talked about the domestic formulations growth that you were fairly confident about growing for -- more than the industry. Can you also talk about what is your sense on the export formulation business, in terms of growth over the next couple of years? Hello?

Yes. I think we should be able to maintain at least a 10% to 12% growth in the branded generic business. Branded generic comprises basically of all my businesses, whether it's Russia, Ukraine, CIS, South Africa, semi-regulated markets. So I think we should be able to maintain a 10% to 12% growth going forward.

Got it. And on the overall margins, sir, in terms of a couple of statements where you said that there is still more room to increase productivity as well as overall addition to the MR. So just wanted to understand, I mean, do you see, given that we can have increase in productivity, as you mentioned, is there more scope for the margins to increase from here? Because you mentioned that margins will sustain at these levels and may not expand. So just wanted to get some clarification on that.

No. We believe margins will remain flat because there will also be expansion that we are looking at. And I guess there will be a bit of compensatory impact between the 2.

Got it. And any new products that you have introduced in the last, maybe in this financial year and what kind of contribution have they generated?

As I have spoke about the ARBs, beta blockers, all those products, which is [indiscernible] so...

The next question is from the line of Prakash Agarwal from Axis Capital.

Sir, question on the volume and the price and new product introductions. So I mean, versus fiscal '19, we see a drop in the volumes. Could you help us understand what would have been the breakup for 9 months and particularly for the quarter in terms of price, volume and new products?

No. So your statement that the volumes have gone down is based on where -- what's the source of that data?

This is the AICD, sir.

Okay. When you're saying there is a negative growth on the volumes because that's not the data. Anyways...

So AICD data, 1% volume growth in Q3 versus 7% for 9 months, which means that first 6 months would have been great. And fiscal '19, 5% growth in volume. So would it be largely ranitidine led or ex ranitidine, what would have been our volume growth, sir?

So this would be all ranitidine-led because ranitidine, as you know, we are selling huge, huge quantities. And obviously, that impact will be there in the numbers. I have not -- if you ask me, without ranitidine, I've not looked at it because ranitidine, we're looking at separately. But other than that, if we look at all of the growths in all my divisions, we are doing reasonably well. So I believe that the volume growth will also be decent along with the price growth. So I don't see a concern other than ranitidine.

And you mentioned on -- I mean, do you expect recovery on this ranitidine or it's too early to talk about it, given that there are still issues are remaining and doctors are switching to other medicines?

So it's too early to say. But as I said earlier, also in the call that today, whatever in terms of limits, et cetera, we are working to meet that, and we have successfully met those levels. But changing perception at the doctor's level along with -- in the presence of all the competition is an uphill task, which we are working on.

Okay. And sir, you mentioned about entering into other the ARBs, the beta-blockers. So anything you're doing on the PPI side also in terms of to capture the Rantac downfall?

No. While we do have a PPI in our portfolio, which is relatively small, our focus will continue to be on ranitidine, where we believe there is enough opportunity because as we speak also, there are a lot of other reports along the PPIs in terms of some of the side effects. So it's a long, long game that we will play within ranitidine [indiscernible]

Perfect. And lastly, sir, you spoke about these -- the new segments you're entering. Have you increased your sales force with that? Or is there a plan for next year to increase the sales force from the current 1,600 that you just mentioned?

No. So these new product introductions have happened in the existing divisions. And the whole idea of divisionalization was to create that extra headroom for growth, which is now possible. So nothing has -- so the 1,600 is what we have. Obviously, going forward, as we roll out plan, we'll announce them to the market, but there will be -- we will be adding as we go ahead.

Sir, sorry to interrupt. We would request you to join the question queue for any follow-ups, as we have several participants waiting for their turn. The next question is from the line of Anubhav Mukherjee from Prescient Capital.

Sir, how many ANDAs approval do we have? And is there a pipeline that we are working on? Can you share some detail?

We have about 16 approvals so far. And we have about 3 pending approval with FDA. And our plan is to file about 2 ANDAs a year.

And sir, what is the -- like, is the U.S. a focus area for us? And that we intend to like [indiscernible], spend on it, some color on that would be good.

Sorry, can you repeat your question?

Sir, I was asking is the U.S. like a major focus area for us. And like do we intend to increase R&D spends to like increase the filings and, yes.

So U.S., obviously, you know the market situation is not very encouraging. All companies are facing challenges there with respect to pricing. And luckily, we've not gone very aggressive in that market. And we've always been very cautious of that market. So our R&D spends and investments are very limited. As I said, we'll plan to file only 2 ANDAs a year, and just go cautious in that market.

The next question is from the line of Bharat Sheth from Quest Investment.

Congratulations, sir, on good set of number on sustainably, I mean improving EBITDA also. Sir, I mean, what I understand from your talk that our domestic formulation business, branded business will grow at faster pace than the other piece of the business. So over the next 2, 3 year, how do we see this domestic mix vis-a-vis other business? And second thing, how that will play out for the margin over next 2, 3 years?

So today, domestic is contributing close to 45% of our business, and is -- our whole plan is, obviously, this will continue to grow, we will continue to invest. So I guess over the next 2 years, probably be more -- a little more than half of our overall business [indiscernible]

Correct, great.

In terms of margin, again, a lot will depend upon the levels of investments, et cetera, that we do in each of the businesses. So at this time, we can -- let's assume that margins can, more or less, would remain same because each of, additional plans that we roll out would have involved some levels of investments and take a bit of time to fructify. So at this time, we'll make efforts to make sure that the margins don't drop.

Okay. Great, sir. Sir, and second thing on this -- other than this domestic business, is there room to improve these margins overall? Company level margin can may -- improve?

So Bharat, obviously, there is some benefit that we're going to get next year because of the price increase of Metrogyl. The royalties itself will -- not be there in the next year. So all that will hopefully add to the bottom line and whatever normal growth, et cetera, we can grow faster than our expense grows, we should be able to do something better.

Sir, last bookkeeping question. We've seen that typically in Q4, our margin is much lower than the 9 months' margin. So is there any seasonality or just to get some kind of a color, I mean, what has exactly happened, I mean?

Think more like seasonality. Sometimes in the international market, as we see, we are spread across many geographies. So generally, it happens that some companies do build up an inventory, some companies just -- basically, there's a distribution model. So it depends. We haven't actually noted in that fashion that our margin is lesser in Q4 or in Q3. We just -- we target and see that our targets are achieved. So basically, the mix of the countries and the product, probably, may be playing out. But frankly, we don't have the numbers on hand to just give a proper answer to you -- this question.

Yes, yes. Fair -- I understand, sir. But -- so are we working on, I mean, to make it, I mean, more even?

No. I mean we generally see a quarter-on-quarter performance, how it improves. So I mean, on a Q4-to-Q4, we try to see that performance is better than last Q4.

The next question is from the line of Jayesh Shah from Ohm Portfolio.

Congratulations for good results. I was wondering if there was a disconnect in our thinking. When we look at this price hike for those big product and no royalties and perhaps MR productivity, it should logically lead to margin increase, unless -- and you were talking about some investments. Now these investments don't seem to be in the form CapEx. So are you looking at more OpEx-based investments, which may help to just maintain margins rather than improve margins, which look quite logical and inevitable?

Sir, let's say today, we're being a bit conservative. Things will clearly flow to the bottom line. There will be minor OpEx increases based on [indiscernible] expenses, maybe a bit of margin gain. But I think from an amortization perspective, we are being a bit conservative [indiscernible]

Okay. Got it. And secondly, sir, in terms of cash on hand, would you review your dividend announcements, given the budget change? Or would dividend payout remain high?

We do review these developments very closely. We have already made an intimation to the stock exchange for convening a Board meeting on an interim dividend consideration by the Board. So -- I mean, those things are like on a case to case and are opportunity based. So we would consider this at this stage.

Right. But any change in your dividend policy or you would review that, post budget? I'm not asking what you would review, but would there be a change?

I mean there is no need and that said, we don't have any plan to do a major review for a dividend policy. We will continue our distribution policy the way we have been doing in the past.

The next question is from the line of Cyndrella Carvalho from Centrum Broking.

Just wanted to understand, we referred to a source for ranitidine API for the U.S. filing. So could you elaborate in detail, who this player is and what's the status?

Due to confidentiality reasons, we can't reveal the source of the name, but they are working with FDA, and they're working to resolve it. FDA has, I think, given them a deadline to reply. And within that time frame, they should reply and once those queries are answered and if FDA is satisfied, then we'll be able to resume supply.

Sure, sure. Any color on the deadline? Like is it near term? Is it end of...

It's in the next 2 to 3 months.

Two to 3 months. And it's a domestic player only?

Yes, it's a domestic.

The next question is from the line of Dheeresh Pathak from Goldman Sachs.

Just to an earlier question, you said that you'll continue the same dividend policy. So just for my benefit, what is the current dividend policy?

So basically, we're looking at about anywhere between 10% to 30% of the PAT in the form of dividend.

10% to 30% of PAT in dividend. Okay. And then there are certain buybacks also you do, right? So you think a buyback and dividend as a common kitty or pool, right? And it will cover under 10% to 30%?

No. Again, buyback, we've looked at it separately. We've kept dividend separate. Buyback is more -- driven more from an opportunity in terms of the value of the share. Dividend is just [indiscernible] to the shareholder.

Okay. Okay. And this -- the -- I'm just looking at the slide, Slide #6. So this -- the J&J Brands revenue that is part of formulation export, so that is part of other sales?

Sorry, say that again, if you don't mind?

So Slide #6, you've given a breakup of the revenue. As for my understanding, there is a contract tool manufacturing that we do for J&J, right, that you show in which revenue breakup? In others means...

You mean second life formulation exports.

Okay. How much is that roughly on an annual run rate or quarterly run rate basis?

On annual, J&J?

Yes.

So overall business is about INR 150-odd crores to our total business. I don't want to kind of -- we don't go into customer details, but about INR 150 crores would be my total guess.

Okay. And the other sales, which is the second last line there, what is this? What does this represent?

There are some miscellaneous items which forms part of my, like, some revenue, services -- service revenues, the exchange fluctuations on the export business and also -- these are [indiscernible]

Okay. So on a pro forma basis, like can you just give the 3 bigger brands that we have? Can you just give like for FY year-to-date, in the domestic formulation, what would be the breakup between Cilacar, Metrogyl, Rantac?

So Cilacar is today over a INR 200 crore brand. So is Rantac, which is about INR 200 crores. Metrogyl would be in the range of all FDs put together, close to about INR 140 crores to INR 150 crores.

And this Rantac would have degrown from what level, INR 200 crores?

No, INR 200 crores, I'm looking at flat sales. So these were approximately last year's sales. They would -- because the first 9 months, we've done well. Next quarter was, this controversy came up. Obviously, a lot will depend upon what happens in the next 3 months, but we expect that at least we will be able to maintain the sales of the product.

Okay. Sir, 1 last question, if I can? This Slide #7. So this Russia CIS, which is shown here. And then below that, you have mentioned sales of Russian subsidiary, which is a lower amount. So the difference is that in Slide #7, this is sales from the India subsidiary to Russia is higher than the final sales of the Russian subsidiary. Is that the way to understand it?

You mentioned Slide 7 or Slide 8?

So Slide 7, you've mentioned a further breakup of revenue where you've given Russia CIS as INR 39.26 crores for the quarter. And then the slide below that, you have given that sales of Russian subsidiary included in Russia CIS was INR 26.5 crores. So INR 26.5 crore is lower than INR 39.2 crore because INR 39.2 crore is the sales to Russia CIS from India and the number which is...

Yes, yes. I think you have understood it right. This -- the number of Russia CIS is the total sales, including the sales to CIS countries. But when we talk of this OOO, which is our 100% subsidiary in Russia, that sale is, though part of it, which is shown in the subsequent slide. So just to differentiate between the CIS numbers and the subsidiary sales number.

Okay. And the sales that Russia does is, they buy entire products from the -- from us? Or do they also buy from outside?

Yes. No, they buy from us.

Similarly, South African subsidiary buys 100% from us, right?

No. South Africa is buying also from the other manufacturers products and selling it locally.

The next question is from the line of Rajat Setiya from VRDDHI Capital.

Sir, what could be the revenue contribution from new products that we would have launched in the domestic market in the last 2 years?

It will be about 10 -- little less than 10%.

And how is the traction coming up there? What kind of growth rate are they growing with?

Our new product growth rate is [indiscernible] it's not 0, so it doesn't make -- growth don't mean anything at this time.

Sure. And in terms of -- now that we have increased our MRs -- number of MRs on the ground over the last 2, 3 years, so I assume our geographic presence would have also increased compared to how we were placed 3, 4 years back?

Not necessarily, because basically, we were still covering all India earlier. So you're now covering all India with 4 sets of -- 4 divisions. So it's not like we were not covering certain areas which we have now begin to cover.

So in terms of our own penetration levels into different regions in India, so are we fairly penetrated or do you think there is more scope to grow there?

No, at this time -- so if you look at each division, one of my cardiovascular division, I have about 200 people and one of them, I have 500 people. So obviously, depending upon the product and the profile of the doctors that we want to cover, the strength of those divisions would obviously vary. So it's not like uniform for all the divisions.

Sure, sure. And in terms of the productivity metric, I think we have reported in a September 2019 presentation that we are doing somewhere around 3.8 lakhs per month basis. So where would we be currently? And where do you think this number has the potential to go to?

So basically, whatever -- since we're not -- we're looking at 1,600 people constant, revenue divided by 1,600, you'll get an idea. So whatever we grow in terms of overall revenues probably will also slow down the productivity level.

Sure, sure. With the same level of MRs, where do you think what kind of productivity levels we can achieve?

As I said earlier, let's grow faster than the market. And obviously, that will flow down straight to the productivity.

Sure. And 1 final question. In the domestic formulation business, what kind of EBITDA margin would we be making?

We are not reporting separate EBITDA margins for our business. So to here, we're just reporting it at a company level.

As there are no further questions, I would now like to hand the conference over to the management for closing comments.

So thank you all for participating in the conference call. We hope to see you in the next call in the next quarter. Thank you again for everybody participating. Thank you.

Thank you. [Audio Gap]