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

Thank you, Verizon. Good afternoon, everyone, and a warm welcome to you all. My name is Anuj Sonpal. I'm the 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 fourth quarter and financial year ended 2020. Before we begin, I would like to mention a short cautionary statement. Some of the statements made in today's earnings 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 any 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. I would now like to introduce you to the management participating with us in today's earnings call. We have with us Mr. Pranabh Mody, President; Mr. Jay Mehta, President of Global Business of Russia, CIS and Brands; Nirav Mody, 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.

Thank you, Anuj. Good evening, everyone. I thank you all for participating in the company's earnings conference call. Let me start by summarizing the financials for the quarter FY 2020. Our consolidated net revenue for the quarter was around INR 444 crores, which grew by about 6% on a year-over-year basis. Our operating EBITDA in the absolute terms for the quarter grew by 40% to approximately INR 92 crores, and operating EBITDA margin were around 20.67% as against 15.64% in the same period last year. The company reported net profit of around INR 50 crores, which grew by 7.1% on a Y-o-Y basis. Our sales growth was driven by domestic formulation business, which grew by around 24% for the quarter on a year-on-year basis. The export business got affected due to lockdown during March and declined by 6% on Y-o-Y basis. The EBITDA margin for the quarter improved against the same period last year primarily due to better product mix and cost optimization. For the financial year ended 2020, our consolidated net revenue was around INR 1,775 crores, registering a growth of about 8% on a year-on-year basis. Absolute operating EBITDA reported a year-on-year growth of 23.4% at INR 377.5 crores, and EBITDA margin stood at about 21.2%. The net profit for the company increased to INR 272 crores, reporting a growth of 40.4% on a year-on-year basis. The company has opted for a lower rate of tax at 25.17% as per the notification 115BAA of the Income-tax Act, 1961. The company also made a provision of INR 100 million on account of payment of compensation ordered by the Supreme Court by the judgment dated April 1, 2020. With regard to COVID-19 situation, we would like to make a mention here that the company has experienced some slowdown in the sale of products in the acute segment due to the closure of the clinics and use of hospitals largely for COVID-19 reasons. This could also impact performance of the new product launches. Lastly, the Board of Directors has recommended a final dividend of INR 1 for the year FY '20 in addition to already declared and paid interim dividend of INR 10 per share in March 2020. Now I refer Mr. Pranabh Mody to give his opening remarks. Thank you.

Thank you, Vijay, and good evening, everyone. First, I hope that everyone is safe and healthy and continuing to work from wherever. So as you may already be aware about the controlling stake sale announcement by the promoters to KKR, so let me give you a brief overview about this transaction. Tau Investment Holdings, together with KKR, has agreed to acquire about 54% stake, which works out about 41.7 million equity shares of J. B. Chemicals, from the promoters at a price of INR 745. The deal will trigger an open offer for an additional 26% or roughly about 20 million equity shares of J. B. Chemicals. As per the share purchase agreement, KKR's aggregate shareholding in J. B. Chemicals would not exceed 64.9% of the voting shares, and the total foreign shareholding in J. B. Chemicals will not exceed 74% of the voting share capital. If the open offer is fully tendered, then KKR will own about 65% of the company, and it is capped at that level. In case the open offer is not fully tendered, the promoters will sell the deficit stake from its remaining 17% held by them at the same value of INR 745. This transaction is obviously subject to all applicable statutory approvals, including required statutory approvals, satisfaction of certain other conditions, conditions precedent in the share purchase agreement and the terms and conditions mentioned in the public announcement. After the acquisition, the current promoters of the management intend to continue to be part of the growth journey of J. B. Chemicals, which was started last 3 years, and we believe that the potential of this company is far greater. And with a partner like KKR, we believe that it would be a little easier to get to our overall objectives. With this said, we open up for questions that you may have. Thank you.

[Operator Instructions] The first question is from the line of Naresh Vaswani from Sameeksha Capital.

Sir, our MR productivity in FY '20 was around 280,000. Sir, now with KKR coming in, how many years do we expect this to reach to an industry average of 5 lakhs? And is there a room to increase beyond that, or then we'll need to hire more people? That was the first question. And second is we have been mentioning that CMO is one of our focus areas, but our growth in this segment hasn't picked up that well. So what is the -- what could be the reason? And do you see now the growth picking up in that segment?

So I'll take the question on the MR productivity. As you know that over the last 3 years, we have increased our headcount quite substantially from close to 600 to -- from 600 to 700 people to about 2,000. So clearly, the whole idea of this expansion is to create adequate headroom for the MRs to grow. Domestic has been doing about an 18% to 20% growth in the last year. So I think this is the journey that we have started. It's still a long way to go. And clearly, there is enough of headroom for growth. So it has to get to industry average, but yes, that -- since this is a process, it's going to take time.

And sir, on that CMO part?

The CMO, we -- the business of the CMO was a little slow because, Cilacar, the J&J business into Russia was a little lagging behind. They had a few challenges in the Russian market. So that being a large portion of our business has seen a bit of slowdown. However, we've added new customers, existing -- the other customers have grown. So again, it will continue to remain a focus business for us.

Okay. And lastly, if I may ask you, your revenue growth EPC has been growing well at around 10%. Now with KKR coming in, how much more can it grow? If you can share some insights into it.

I have no -- at this time, it's still too early. We've not yet seen plans. So there's -- I can't comment on that at this time.

Okay. And sir, this -- our top 4 brands, which are there in domestic market, are we exporting them? And what is the sales number, if you can tell that?

We can get to those numbers separately later on. But -- yes.

The next question is from the line of Kishan Gupta from CD Equisearch Private Limited.

So the first question is that what is the rationale for the promoter selling its stake?

So we -- if you look over the last 2 years, we've done a fair bit of work, and we've got the company to a particular level. Our belief is to take it from where we've got it to a significantly higher level. That's an opportunity where the risk-taking ability, our ability to kind of look at other options, like mergers, acquisitions, et cetera, were something which -- partnering with someone like KKR, I believe that those options open up. So really, we believe that changing the growth trajectory of the company is really where the options were is the reason why we kind of looked at it. We got a decent price. We believe it's a good price, and therefore -- so a combination of both these were driving our decision.

And if you can talk a bit about, sir, what is the reason for the premium being so less because in -- issue price is INR 745. So what could be the reason for that? Because they are getting a controlling stake.

Yes. So I think that the price we've agreed to, you know the price has moved a lot based on news in the market, so this is something that we've agreed on, and they've agreed to pay. So I don't know how to comment on that any further.

All right, sir. And sir, what sort of problems are you facing in terms of import of raw materials?

Nothing. Everything is getting back to normal.

All right. So no disruptions at the moment?

Nothing significant.

[Operator Instructions] The next question is from the line of [ Shiva Kumar ] from [ Blend AIS ].

I have two questions. The first question is in the opening remarks, it was indicated that promoters and management would likely continue post the deal. So if you can give a bit more detail, like who from the current management would continue? Would it be all the promoters? Or would it be certain identified promoters? First is that. And second, if you can give me some quantification of the impact in various segments due to COVID in Q4.

So in terms of continuing, it will be Jay, Nirav and myself. So that we will continue to work because we've been actively involved. We would continue to participate going forward. In terms of impact on Q4, difficult to quantify, but kind of the lockdown happened around the 20. So there was a bit of -- again, there is -- I don't know whether disruption or emergency purchases, there's a combination of both that happened. So net probably effect on the domestic is I don't know which side of the coin you can take. In terms of exports, there was -- the last 10 days, because of everything shut down, exports were impacted for the last 10 days.

Sir, any quantification? Like maybe what's -- in percentage terms, 10%, 15%?

That would be about $2 million, $3 million at best. Yes.

Okay. And you said -- it's just a follow-up to the question which I asked, continue on the same line. Sir, you mentioned yourself, Mr. Jay and Mr. Nirav will continue. Is there a time line predecided till which you will continue? Or is it like open ended and you might continue for next, let's say, 5, 10 years ?

At this time, it's open ended, nothing has been discussed. We'll see how things progress.

The next question is from the line of Neeraj Parkash from Nepean Capital.

Just wanted some insight into the gross margin expansion for the quarter. It's been pretty significant year-on-year. If you can give me some color on that. And if -- what is the sustainable level going forward? And also with regards to raw materials, what is your reliance on China? And are you sort of foreseeing any issues on that front?

Vijay, you're taking that?

Yes, I will take that. The margin expansion is mainly driven by 2 factors. One, in case of domestic business, it is mainly because of the better product mix, which has helped the margin growth. On the export side also, it is primarily the dollar which has helped the foreign currency movement, which was more towards our benefits. And also in certain markets where the margins are better, so there also the product mix plus the foreign currency, which has helped during this current financial year. And on China part, I think, Pranabh bhai, you want to answer or maybe the...

Yes. Basically, again, China imports are very small and, as I said, disruption is minimal. Things are coming in from China. So I think actually managing India now is becoming a bigger challenge than all the imports with COVID increasing, a lot of factories are -- you're seeing a few positive cases coming up here and there. So I think it's a bit of a challenge more in terms of India because of the uncertainty.

Right. And just on the domestic product mix that you mentioned, what exactly is driving, which specific products? If you can give some insight or maybe within the type of formulations or therapeutic areas that are driving the growth.

Rather than our products, I think it is more on the therapeutics segment, which we can call. It is more on -- it is more driven because of the cardiac segment, which is growing and doing quite well and some of the focused products in the acute segment also. So that's how the margin expansion in domestic business has...

The next question is from the line of Sriraam Rathi from ICICI Securities.

Congratulations on the deal, sir. So two questions, particularly one on the domestic market. Of course, FY '20 has been quite good for us. So given the COVID and lockdown scenario, I mean, how do we see domestic business in COVID in the first half and for the full year FY '21? And can you continue the similar growth trajectory? Or there could be some...

Sriraam, you've seen the projections, which these guys have given, the CD guys, the NX guys have given. So they are projecting a 1% to 2% growth in the overall pharma market, with the acute, obviously, more impacted. These kind of sales, which is lost in the first 2, 3 months, you're never going to be able to catch up in your acute business. That's a business that is gone. So clearly, there is a challenge in terms of market. Last year, market grew by 10% to 12% overall. And in that, we showed a growth which is higher. So our whole thing is whatever the market is growing, we need to try and do better than that. But other than that, with this uncertainty, the ability of medical representatives to go and meet the doctors, all those challenges, et cetera, it's difficult to say. We just take it a month at a time.

Okay. Got it. And secondly, sir, on the deal side, since the management will continue and you will be having around 17% stake provided the open offer gets subscribed. And sir, will there be any kind of locking period for the remaining stake for the promoters? Or is the stake open?

No. Nothing.

The next question is from the line of Anand Bhavnani from Unifi Capital.

We're trying to develop a strategic sense of the company's future. It may be different from the past. You all have done a great job in the last few years, yet you all have chosen to invite KKR. KKR has recruited some, but could you give us a sense of their understanding of the pharma sector? And what is it that specifically you think they can provide? You all have a reputation for good governance. So this is not something I'm sure that is a requirement in your case, so it has to be strategic. And if you can give us some sense of the strategic thinking that will help us understand and appreciate why you chose to do this.

So basically, the -- in terms of at least in India, they've had Gland pharma. I think they've got some of the hospitals, which they're looking at. And again, among -- they seem to be capable of doing it. They've given us a good price, that's something that was acceptable to us. So I guess still the whole existing management team, whichever is there will -- I'm saying operational team other than us will continue. So things according to me would continue to move on in that direction because it's eventually the team that will deliver. And it's probably the same team that's going to work and move this forward -- take this forward. And other than that, I don't think -- I really don't know what -- how to comment on KKR's direct role in this.

I appreciate that. Maybe my question, if I rephrase it, it will help you understand what we are trying to understand. I can imagine a few scenarios, KKR may have the ability to help you in-license products from relationships that you don't have that they do have or they may give you an opportunity to supply formulations or APIs to companies that they understand and they know well where they have investments already. Are there any opportunities of that nature?

It's all of the above. So we've not got into any specific plan where they've given us a plan, and we said, yes, this makes sense. Let's go ahead and do it together. There's no specific plan, but it should be all of the above.

The next question is from the line of Saket Bansal from Opulent Investment Advisors.

[indiscernible]

Mr. Bansal, the audio is not clear. Please repeat your question.

Hello? Can you hear me now?

No, sir, it's breaking.

Hello?

Yes. Now it's audible.

Sir, I had a question on other income for the quarter. Why is it so low compared to the other quarters? What were the changes made during the quarter? Plus, can you explain me about the comprehensive income breakup since some -- there is some [indiscernible] it seems that the high comprehensive income also. Can you explain what is that? Also, about the product like Cilacar, Nicardia and Metrogyl, these 3 product has been an outstanding product for you and it -- that has governed the growth in whole year. How do you think this will move forward because they are already at a very high base right now?

Okay. So on your first two parts of your other income and other comprehensive income, I will just take it. The other income in the current quarter Q4 is mainly impacted because of the March month bond market impact due to the COVID situation where, all of a sudden, [indiscernible] become very serious in India and then they announced a lockdown. So the bond market reacted it very negatively, and that's where the yield sharply corrected. So this was a mark-to-market loss in the NAV of the debt mutual fund this company held and which has got reflected. Of course, it was very short lived. In the very first week of April, it got reinstated. But because 31st was the day when the books are closed, so that was reflected. The other comprehensive income is also primarily because of the currency fluctuation. So on a consolidation, when we do the subsidiaries' books into a local currency -- from local currency to INR, there was a good amount of currency depreciation in both the subsidiaries' currency vis-a-vis our currency, and which, as per the accounting present business requirement, it is called the foreign currency translation result, which needs to be reflected under DoC guide. So primarily, that is the factor which got reflected in that. Both are basically a mark-to-market impact and what we realized. On the product mix, maybe...

Yes. On the products, there's still enough of opportunity for many of these products. We've introduced the line extensions, et cetera. So we believe, yes, that there is -- there are growth opportunities there. But eventually, a lot will depend on how this market moves, what happens in terms of doctors' availability, patients' availability, all those other challenges. So difficult to forecast at this time. We just take it a day at a time or a month at a time.

Did we take a price hike in Metrogyl.

That is the standard WPI increase that was granted by government, that 2.8% or whatever, yes, that price increase is taken.

When was the price increase was taken?

Yes, that was implemented in the month of December.

That was implemented in the month of December.

Sorry to interrupt you, Mr. Bansal, may we request that you please rejoin the question queue? The next question is from the line of Sunil Kothari from Unique Investment.

Pranabh bhai and team, congratulations for a good set of numbers during last year. And as always, you created goodwill. You are right when you sold Russian business, and currently also, I think we got reasonable good value. My question Pranabh bhai, is, basically, we are selling out, but promoters, as you rightly -- on your opening remarks, you said that we want to remain for a -- 17% remaining stake also you want to keep. So you will be on your operational team, you will be there. Existing team will...

No, no. We are not in the operational team. We'll be in the support team. We will help them. We will guide them. We will give our inputs, but eventually, they would be the ones who would be taking the final calls.

All right. And Pranabh bhai, we have invested during the last 3, 4 years around INR 350 crores, INR 400 crores in fixed assets and new capacity creation. In your opinion, how -- what type of utilization we have got from those investments? And remaining how far better we can do from those existing ability, which we added during the last 3, 4 years?

If you look at last year, let's say, today lozenge capacity, we'd probably have reached about -- after the expansion about 50%% capacity utilization, we would have reached in the lozenges. On the tablet side also, we would -- that new plant, that entire -- now that we will get permission, that will be available for additional business, and similarly with the ointment. So there is adequate capacity. And if we are going to look at CMO business, you can't go to a customer and saying, okay, I'll set up a facility and come. You need to have spare capacity, and that's really what we've done. As the CMO business gets -- begins to grow, that capacity utilization will improve.

And sir, my last question is do you feel with KKR's support and KKR's ownership, J. B. Chemicals can do reasonably better than what we were doing during last 4...

I don't know how to answer that, Sunil bhai. We'll talk about that after some time has passed.

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

Could we see now CEO, CMD appointments by KKR?

There is a possibility, yes.

Okay. And what about the management compensation which we have seen until now, does that continue? Or...

Too early to say. This deal just happened on Friday last, so I'm sure they are also going to work and decide, get into detail, review all the things and take a call. So too early to comment on any of that.

I see. And why is it that the dividend payout ratio has actually fallen this year? Because I think traditionally, we have given a higher dividend payout.

So in March, we paid a dividend, which is reasonably high, INR 10, that interim dividend. So when we decided to give this dividend, we said at least let's maintain a track record of dividend under same dividend-paying company. So at that time, we've already -- I think it was about almost close to 40% dividend payout ratio, which was -- in terms of our policy, we're around 30%, 35%. So just in order to maintain that 100% track record, we decided to give a nominal dividend this year.

Okay. But you could have actually given more dividends. So is there any cash utilization plan with KKR coming on board? Or...

Too early again. I'm -- too early to comment on any of that.

Okay. And any comment on the June quarter? How is the June quarter till now?

Nothing. No comments.

The next question is from the line of Ashok Ajmera from Ajcon Global.

Yes, Pranabh bhai, most of the questions have already been covered by analyst colleagues. I would only like to know just to -- just have a little idea of the future of the company that what could have been the major bottlenecks in spite of such a good corporate governed company, very efficient management and very good control on the products and recent expansions? What could be the -- could have been the bottlenecks for Mody to continue expanding this company and increasing the business than -- which can be removed by now KKR? I mean what do you feel KKR will put in more on the plate -- on the table?

No, it's a little more aggressive. Their contacts, their abilities to source products, so all of those, which we spoke a little earlier. So all of it is where we believe that they can add value and that should help the company going forward.

It's more as a money power, you feel?

Yes. The ability to take risks also probably, yes.

Also, their global network and experience will add a lot of value in the growth of J. B. Chemicals globally and expansion into newer markets and territories. They know how to run a pharma company. They've done it in the past. So I think they have the experience and the ability.

All right. And my second question, I don't know whether it is appropriate. This kind of huge cash flow coming in, in the hands of Mody, is there any -- I mean what could be the plan for you all to go for what kind of business or acquisitions?

Too early, too early, too early to say anything.

Pardon?

Too early to comment on that.

The next question is from the line of Sarvesh Gupta from Maximal Capital.

Congratulations on the announced deal. First question is as you mentioned that in this quarter, we are looking at 1%, 2% industry-wide growth in the domestic segment. But since your products are being exported everywhere, if you could help us give a sense of how similar challenges of MRs or feeling the acute therapy, et cetera, is panning out in your export geographies? If you can give us some geographical sense of how things are outside of India.

Jay, do you want to take that for Russia? Nirav, South Africa?

So for South Africa and other markets, I mean, South Africa, the private business and the tender market has grown. The tender is also growing well for us, and we are showing good growth in the product mix that we have. Similarly for ROW semi-regulated markets for the -- because of the COVID, logistically, we had some issues at the end of March. But otherwise, the demand is there for our products across all the geographies. So it's a question of just supply to our customers. Also, given the lockdown, we had some constraints on the manufacturing front in terms of the manpower. But otherwise, demand continues to remain, and we'll supply once lockdowns are removed.

Yes, the same applies for even the Russia, CIS region. There is still good demand for -- in the marketplace. It's only because of the issues around the supplies that we were kind of constrained in the period of March.

So you are not seeing as much impact in outside of India as you are seeing in India?

I think the demand is there. U.S. also, the demand is there, but pricing pressure continues in all markets given the nature of the commodity of the business. But overall, demand is there. It's just a logistics and supplies constraint.

As much pressure outside of India as you are seeing in India.

Yes, not much.

Okay. And the 17%...

Mr. Gupta, sorry to interrupt you.

It's my second question only. I was saying that this 17% stake, I understand that this is an open thing post the open offer, but this stake eventually will get sold. Is that a fair understanding that you would do an offer for sale to completely exit now that you have -- you will anyway exit the majority control?

Too early to say anything at this time. It'll all just depend on whatever is -- how things pan out.

The next question is from the line of Nikhil Upadhyay from Securities Investment Management.

Congratulations on the deal and good numbers in this quarter. Sir, two questions. One is on the KKR. In the opening remarks, you said that probably they can provide us -- or probably what they bring to the table is on the inorganic opportunities and being aggressive. So is there something which you are looking at and because the scenario is also that many of the smaller guys are -- players are getting impacted. So is there anything, which...

Too early. Too early to comment at this time. As I said, it's not even been 3 days. So I guess all these plans, we will spend time, we will understand, we will get into all that. But too early to say anything at this time.

Okay. And lastly, on the domestic business, I think recently, we launched a new product [indiscernible]. So if you can just help me, is it a similar first-mover advantage kind of a product or commoditized kind of a product ?

So there would be at least 10 companies who've launched the product in the market. That happens with all product launches. So we'll be one of the 10 people who introduced this product.

Okay. But do you feel it has...

Yes, it has huge potential. Yes, yes, huge potential. That's where we believe, and we've put it out in the market.

The next question is from the line of Neelam Punjabi from Perpetuity Ventures.

So my first question is on the margin profile. So 3 to 5 years out, what is the margin profile that our business is capable of? And second question is related to risk to the Rantac franchise. Given it has been withdrawn in the U.S. So what is the kind of risk mitigation strategy that we are adopting?

So on the margin, 5 years hence, I think it's very difficult for anyone to say anything at this time, even managing COVID, the kind of price increases that are happening, companies struggling to deliver. So I think 3 years, 5 years, I don't have that capability or capacity to suggest what will happen. Obviously, as a company, we will continue to look at products where we can sustain margins and improve margins as we go ahead. But beyond that, I can't comment on anything. On the Rantac side, yes, the issue of NDMA is there. Counter to NDMA, and if you look at all those whatever press articles, there are enough of scientific articles over the last 30 years and 40 years since the product has been in the market in terms of the safety profile that this product offers. So clearly, yes, the NDMA when they say that it's at whatever levels, if so much someone takes a medicine for 70 years continuously, 1 out of 1 lakh patient has the probability of generating cancer. Now those kind of numbers, if we have to try and bring it into India, I think half of all products would get out of the market. The controversy has started with metformin now. It was for valsartan. So again, it depends on what the government takes a view. But as far as valsartan and losartan, they've not done any changes or they are not measuring NDMA in the product. Our hope is that they look at the safety data of the product and allow us to continue doing what we are doing.

The next question is from the line of Kunal Mehta from Vallum Capital.

So the first question I wanted to understand, sir, we have been working towards doing some filings into the U.S. business. So could you give us an understanding of do we have any plans for launching new product in the U.S. this year?

Yes. So one of the products that we've got approval for, we plan to launch it. So I think 1 product per year is what we can expect.

Understood. And the second question I have is could you please let us know the MR strength as it stands today? And how much for chronic and how much for acute?

We have about MRs about 1,600 -- around 1,600 total, around that much. And along with then the managers and the layers above, a little over 2,000 people.

Okay. And the segregation between chronic and acute, would that be possible, sir?

We would -- okay, so I'm talking about MR. And in chronic, I would have close to about 650 to 700. And in acute, it would be at about 900 to 1000.

The next question is from the line of Anand Bhavnani from Unifi Capital.

So just two questions. One is in case of Metrogyl, we had a price hike. So in the FY '20 numbers, how many months of price hike is already reflected?

So the price hike, some of it took place in January, and some of it took place in February. So it would barely be about, on an average, 1.5 to 2 months.

Okay. And sir, in case of your interview on TV on Business Media channel when the deal was announced along with Mr. Nair, Mr. Nair alluded to newer therapeutic segments, and one of them was respiratory. So is it fair to assume that any such newer segment that you would want to enter, is it possible this year?

I would assume that they would be looking at a lot of newer segments, but too early for me to comment on that, please.

Sure. And lastly, while you mentioned that KKR might bring in its own management team, you and rest of the brother and cousin would continue to advise them throughout this?

So I'll support whatever, whichever the right word is.

Yes. But it's fair to assume that you will also retain a Board seat to extent you have certain stake?

Yes, that is correct.

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

Sir, just wanted to check what is the total sales in the domestic-focused brands that we did in the last year?

I would not have the number up hand, but it's -- I don't know at this time.

Sure. And on the U.S.A. generic exports that we do, I think last year, we -- in 2019, we had done INR 180 crores, but in this year, we did INR 140 crores. Is it -- the decline is entirely because of lockdown issues? Or is there a decline in the sales itself?

So we had a supply constraint from one of our API suppliers for one of the Indians, and hence, some of the sales did not happen. That was a major reason. But at the same time, because there is also slight pricing pressure in the U.S. And so it is obviously the lockdown that started in the March.

How much did we lose because of API issue as well as lockdown issue?

No, we are not disclosing the amount.

The next question is from the line of Dhiraj Sachdev from Roha Asset Management.

I just wanted to know the incentive of the management to run the business with a residual 17% stake versus majority control earlier versus managing money that is received and taking care of that money, which is received from KKR or running a new business or creating a new business?

Time will tell. I don't know. We're very upfront and frank. We will support them. We'll understand the business plan. We'll understand what the long-term thinking is and then decide what is appropriate for the family.

No, I agree. But from a longevity perspective for -- in the interest of investors, we just want to know what is the incentive to continue running the business with that minority stake?

As long as the business plans look interesting, as long as the business plan is productive, and we believe that the opportunity -- they would be able to get a growth, which is better than what we've been able to do, that automatically becomes an incentive to hold back, right?

Yes. But as opposed to focusing on the money that is being received to create a new venture?

So I guess, we'll eventually do an evaluation and decide what works better for the family. So that's what I'm saying. It's a little early to kind of say anything, that -- unless we have all the options clearly laid out on the table, probably difficult for us to reach any conclusions at this time. We kept that option open, that's about it at this time.

The next question is from the line of Sapna Jhawar from Dolat Capital.

So in the past 3 quarters, we've seen -- we've taken a lot of price hike for our major products. And we've actually done a lot of work on the MR front, focusing on these products, hence driving the sales. So after all these exercises now, can we say that our pricing is at par with the competitors? Or is there still more scope for them to grow from here and take more price hike eventually?

I think as a company, one of our strategies is we've never been price leaders in any of the segments, even if we are leaders in terms of revenues. So we believe that we need to be reasonably priced. Now with the decontrolled products, yes, you have the option to increase the price. But there is a price at which it begins to tip in the negative direction. So again, you look at it each product to product and who are the competition, what's the cost of therapy, what's the cost of treatment and then calls are taken. So if there is an opportunity to increase, yes, we will try and increase. If there is no opportunity to increase, we will not do it. If we can take 2%, 3%, 5%, we'll do that. So it's difficult to give a generic answer to that. With the costs increasing the way they are over the last 1 quarter, obviously, we'll have to look at everything and then take what is, again, appropriate for the company.

Sure. And also beyond our 4 major products that we have in the domestic market that continues to drive majority of our growth, which are the other therapies of products that we're now looking to recreate just like a Cilacar or a Nicardia? Do we have that visibility?

Yes. So if you look at it in each of the divisions today, we've introduced some new products. And with the Cilacar division, we've introduced a Myotan which Azilsartan. With Nicardia, we've now introduced Azelnidipine which is there. So we will continue to keep adding products in each of these divisions. These anchor brands give us the ability and the time to be able to -- and the relationship to go out and start these other products. So the whole idea of the divisionalization, which we started 3 years back, was just giving us the headroom to be able to grow and that has to now pan out.

Sure. And we would not require any newer capabilities to grow into these new therapies or products? I mean we have in-house all the capabilities?

Yes, yes, capabilities are there. Now the question is, tomorrow, if I believe that the pediatric division makes sense to do and probably carve out the pediatric products and put it into a separate division and try and grow that. So it's -- so those kind of opportunities is all work in progress. When believe we've reached a particular strength and a particular level, those kind of opportunities we will do and grow, and that gives us ability to add newer products again into the basket.

The next question is from the line of Anubhav Mukherjee from Prescient Capital.

Sir, on the ranitidine issue, has there been any like queries or any like requests for any data testing from BCGI?

Nothing specific.

The next question is from the line of Saket Bansal from Opulent Investment Advisor.

Sir, you said the cost is increasing in last quarter, whereas most of the pharma companies have guided that most of the variable cost has gone out. So can you explain me why the cost for your company has been up?

I'm talking about material costs.

Okay. And how about the other cost, the variable part?

The MR is working from home, their allowance is reduced, your sample cost reduces, the promotional costs have obviously come down. But the cost of material is something that -- our cost of operations when you run a plant and a factory at close to -- starts off at 40%, 50% capacity utilization, obviously, those costs will be higher. So when I say cost going up, I'm referring to these kind of costs. But some of the things like the MR working from home and probably lower promotional spend, et cetera.

So do you think the margin, at least you would be where you are currently? Or there can be a dip going forward?

It should probably be where we are. So around -- there will be a plus/minus. I think that -- anyway, let's wait for the June numbers to come out.

Okay. And how do you see for the whole year? Would it be...

Too early, too early. We are not projecting anything for the future.

The next question is from the line of Naresh Vaswani from Sameeksha Capital.

Yes, sir, I wanted to ask a question in terms of how well insulated we are in terms of price caps or price erosion considering we are well diversified compared to other companies. So we had mentioned somewhere in the annual report that in the domestic formulation, around 31%, 32% of the sales come under this price caps. So how do you see this number going forward?

Look, eventually, the government is looking at a new NLEM list, which is the essential product list. And how -- what comes out of that and how it impacts that, that's for anyone -- difficult for any one of us to comment on at this time. So at the way it is currently, it is what it is. There is -- and our focus is on trying to grow products, which are outside price control, which have good headroom for growth. So we continue to do that. But what comes in new NLEM list, et cetera, that would be difficult for us to predict anything at this time.

But the government's intention is to increase that list, right?

I don't think it's necessarily increase, but they will keep adding, deleting, changing it a little bit. So that -- this is a sensitive topic, so it's important. So it's -- again, still, it's too early for us to even comment because there's no real proposals that have been still put in place on any such thing.

The next question is from the line of Abdul Puranwala from Anand Rathi.

Couple of questions from my end regarding to the stake sale. Sir, any time line do we have in mind by which the entire stake sale would finish?

So based on the regulatory requirements, the expectation is about 1.5 months to 2 months because of whatever regulatory requirements. So we would hope that -- and within that time, the open offer also could be completed. Between -- anything between 2 to 3 months.

Sure, sir. And sir, my second question is regarding to the promoter holding. So the way the deal is structured, my guess is, I mean, if the open offer doesn't come into place, I mean the way it has to read, that is 26% has to be taken from the public, if that doesn't happen, then would it also resort to promoter fully divesting the stake?

Theoretically, yes.

The next question is from the line of [ Shiva Kumar ] from [ Blend Fund ].

Two questions. One is, is there a noncompete agreement that you have signed in view of this deal?

Yes, there is a noncompete.

Okay. And second, you mentioned about NLEM list coming. Is there a tentative time line by which the government is expected to release this new list?

I don't have information to be sure when that list comes out. At least, I don't have that information. I'm sure there is something, but I don't have that.

Okay. But latest by the end of this calendar year, one can expect, is it?

It's speculation. I don't know. Seriously, I don't know.

The next question is from the line of Anand Bhavnani from Unifi Capital.

All questions answered.

Thank you, Anand.

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

Well, thank you very much, everyone, for the interest that you all have shown in the company. It's been a journey for the family and appreciate all the support and help you guys have always given us. Thank you very much.