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

Ladies and gentlemen, good day, and welcome to Q4 and FY '21 Earnings Conference Call of J. B. Chemicals and Pharmaceuticals Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jason D'Souza, Head Investor Relations, J. B. Chemicals and Pharmaceuticals Limited. Thank you, and over to you, sir.

Thank you, Margaret. Welcome to the earnings call of J. B. Chemicals and Pharmaceuticals Limited. We have with us today Mr. Nikhil Chopra, CEO and Whole Time Director; Mr. Kunal Khanna, President, Transformation; and Mr. Vijay Bhatt, Chief Financial Officer of J. B. Chemicals and Pharmaceuticals Limited. Before we begin, I would like to state that some of the statements in today's discussion may be forward looking in nature and may involve certain risks and uncertainties. A detailed statement in this regard is available on the Q4 FY '21 results presentation that has been sent to you earlier. I would like now to hand over the floor to Mr. Nikhil Chopra to begin the proceedings of the call and give his opening remarks.

Thank you. Thank you, Jason, and good afternoon, everyone. This is Nikhil Chopra, a warm welcome, and thank you for taking time to join us for the discussion on the operating and financial performance of J. B. Chemicals and Pharmaceutical for the fourth quarter and financial year ending 31 March 2021. I hope all of you, your families and colleagues are keeping safe through this difficult phase of time. As the situation continues to ease and the lockdown opens up, we look forward to better times in future. I will start with an overview of our performance and share some of our perspectives on the business. Following which, Mr. Vijay Bhatt, our CFO, will take you through the key financial highlights. After that, we'll be more than happy to take all your questions. We announced our results yesterday with the company recording 15% top end growth in the revenue of INR 2,000 crore, which was a milestone for us in the history of JBCPL as a company. This performance has been delivered during one of the most challenging periods in recent industry on account of pandemic. Further, the strong revenue growth has been achieved with our core brands and non-COVID portfolio, thus, the growth achieved during this year reflects the resiliency and the sustainability of our business. EBITDA margins expanded from 21.3% to 27.4% in this financial year. And profit after tax was higher by 65%, which was close to INR 450 crores for the year. Our Domestic Formulations business performed well during the year, registering a growth of 12% at INR 892 crore. As per IQVIA [ May ] '21 data, we recorded a robust 21% growth as compared to 4.5% growth of Indian pharma market for the same period. I'm also happy to share that overall, our ranking in IPM has improved from 32nd to 28th rank. We are, by the way, the fastest-growing company in 12th, 13th to date, as recorded by IPM. This was just another year of secular outperformance driven by our strength in chronic therapies -- chronic therapy segments and acceptance of our products, prescriptions that is now extending deeper into Tier 2, Tier 3 and beyond. During the year, we have implemented a new go-to-market model for our domestic business and introduced selected new products in complementary therapeutic areas of our strength. We have also instituted a core nephrology task force to capitalize on our strength in this therapeutic area. Next, our foray into the field of respiratory and pediatric therapy is being taken forward by a strong 350 member team task force, which is -- the name of the division is [ Nova ], with focus on antivirals, oral corticosteroids, anti-allergics and nicotine replacement therapies. The transformation journey is supported by continuous efficiency driving, initiatives like Salesforce automation and excellence and overall incremental digital adoption. That is what I believe that how do we complement the presence of our free members in the clinic with that of digital adoption. Overall, we expect our India business to maintain its outperformance based on the growing visibility with prescribers, specialists and the pipeline of new launches in line with our therapy diversification plans in complementing therapies. Talking about our international business, we are currently putting in place a growth strategy for key markets, which will be aided by new product introductions. As you may know, we remain committed to going deeper into some of the existing markets and geographies without dampening our focus. We are also strengthening our R&D capabilities that should support the medium- to long-term growth opportunities in our international markets. During FY '21, I'm very happy to share that we have seen a good momentum, aided by strong performance in South Africa and U.S. business. Also, I'm glad to talk about the industry growth in Russia, especially in the field of cough and cold segment has slowed down in the last financial year, and this impacted our business momentum in that country. In other emerging markets, we are well placed with a strong export order book. Also happy to share the entire API business recorded a positive growth for the year, which was both U.S. and Europe market. Hence, over the years, our initiatives across both domestic and international business segments has yielded positive results with a revenue growth of 13% CAGR over the last 4 years. Also, our operating margins have continued to expand throughout this period. And profit after tax has grown at a CAGR of 48% in this 4-year period. ROCE has continuously expanded from 15% in FY '18, and it stands at 42% for the year FY '21. We strongly believe that our endeavor will be to maintain a healthy ROCE, which indicates our commitment of delivering value to our stakeholders community. Most importantly, we continue to generate a free cash flow during this financial year. Our healthy and strong balance sheet will provide us opportunities to grow our business, especially in India business, consistently, and we'll continue to focus on organic growth, which will be market beating and also investing in organic opportunities, which will be -- which will add value to the organization in the medium to long term. Going into FY '22, we expect the top line trajectory to continue with commensurate benefits of operating leverage. Even as the costs are normalizing, the cost efficiency initiatives issued with over last 1 year are supporting the profit growth. And further improved working capital levels are enabling continued and strong cash flow generation, which is overall helping in maintaining the better EBITDA margins. Overall, our standing business position based on multiple corporate initiatives that we have taken over last 1 year places us well to enhance value for all our key stakeholders. On this note, I would like to conclude my opening remarks. And now, I request Mr. Vijay Bhatt, our CFO, to share a brief perspective on our financial performance. Over to you, Vijay.

Thank you, Nikhil. Good afternoon, everyone, and I welcome to J. B. Chemicals Q4 Earnings Call. I will now take you all through the sum of the key financial highlights of our performance for the quarter and the year-end the 31st March 2021. As you have noticed, Q4 saw 19% growth in revenue at INR 528 crore. Margin also expanded by 270 basis points to 23.4% even as our operating expense normalized to a large extent. However, as Nikhil indicated earlier, we have looked very closely at our cost structure and some of the interventions may have enabled structural improvement. Our EBITDA expanded by 35% to INR 124 crore, primarily driven by growth in top line and the operating leverages. Profit after tax also doubled INR 201 crore. During the fourth quarter, domestic formulation revenue increased by 9% to INR 221 crores based on positive sales traction in line with our expectations and improvement in demand from acute hospital segment. Growth for the quarter in this segment has also achieved over the higher base of the corresponding quarter last year. Apart from the domestic business, the international business also delivered a healthy growth of 31% in quarter 4. Revenue expanded to INR 303 crore. Overall, both domestic as well as international business have performed well on a normalized level. For the full year 2021, revenue grew by 15% to a value of INR 2,043 crore. What is more encouraging is margin expanded by more than 600 basis point to a very healthy level of 27.4%. And profit after tax expanded by 71% to INR 597 crore. This translates into an EPS of INR 58 for the whole financial year 2021. The Board has recommended final dividend of INR 8 per share. This, of course, is in addition to the interim dividend of INR 8.5 per share declared earlier in the current financial year. This takes the total dividend payout to INR 16.5 per share for the full financial year. I would also like to highlight some of our other facet of financial performance. Most importantly, return on capital employed has improved significantly from 29% to 42% during the financial year. This follows a strong track record of continuous expansion in written ratios. We have also grown -- growing by leverages -- leveraging our existing manufacturing, distribution and relationships and expect to continue a similar direction in the FY '22 as well. Our cash balance position also indicates that is a substantial liquidity, and it has grown over the last year. Our net cash position as on 31st of march stands at INR 663 crore. Our current balance sheet position indicates there's substantial amount of liquidity available to the company, based on which we look forward to pursue growth opportunities to drive further value in the business. What I have concluded -- conclude in my remarks. We would like to open this forum for all the interactive sessions with all of you, and we'll be happy to respond to your -- the questions, which you, people, may be having. Thank you.

Over to you, Margaret, for the question-and-answer session.

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

Congratulations on a great set of numbers. Sir, particularly in the India business, this year, we've seen that the growth momentum has continued to be strong. And I mean if you can share some perspective in terms of the progress, which has happened in terms of launching new products in the new segment. So I mean this segment, we've already seen the pros and cons. You have already started in FY '21, and how should we look at it in terms of FY '22, I mean, from the new segments, which we were planning to enter?

So from perspective of new launches with the new initiatives that we have taken in India business that we started doing in quarter 4, quarter 4 the last financial year, what I shared in my earlier talk. That playing to our strength and keeping it focused, we are a dominant player in the world of hypertension within cardiology. We have extended that in the world of metabolics by launching a couple of products in diabetes that already products are in the market, which is dapagliflozin and vildagliptin. That is point number one. Equally, we have taken initiative to launch a niche division in the period of nephrology. Today, at J. B. Chemical, nephrology as a specialty is #1 specialty for us. So we have launched around half a dozen products in the field of nephrology, which are in case of launch, which is going on with the task force of around 30 people and that works are all co-prescriptions in supportive therapy. That is point number two. And equally, we are in the process of getting into the world of pediatrics and respiratory, which is a combination of anti-allergics, corticosteroids and some other cough and cold products. So all put together, you will see around 8 to 10 products within next 6 months, which will start getting support from the doctor community in the field of pediatrics, in the field of respiratory, in the field of nephrology and metabolics.

Okay. That's helpful, sir. Sir, I mean, will existing sales force be able to manage all this? Or if we will be looking to add more sales force?

So last time also in our investor presentation, we had shared that there are no plans, short to midterm, to add any field force. The entire new go-to-market strategy that we have put and the entire transformation piece that we are putting in place, we have realigned our field force, and we are optimizing our entire field force of 2,000 people in India business with the focus that we want to put in terms of making our big franchisee the top big 5 franchise is bigger by focusing in metro, entire [ one ] town and looking at what we can get maximum from our legacy product entire rural part of the country. And also, we have realigned our field force. We have new initiatives [ that ] will be baked in, and the same number of people will be more focused in, not only delivering organic growth with the help of our existing products, but also give justice to our new launches.

Okay. Okay. Got it, sir. Got it. And sir, secondly, I mean, export growth has also been quite strong this year. Is it possible to share the details of, I mean, how is South Africa then how is U.S. and how much revenue they would have reported?

So we don't want to discuss the details of each geography, but international business continues to show a very strong momentum. The 2 key geographies, which have done extremely well for us are South Africa and U.S. Apart from that, we also saw very good strong growth through the last year in our API business. As things stand right now, our order book momentum continues to see a similar trend. And we are confident of the momentum continuing.

Okay. Got it. Just lastly, on the margin, this year, of course, we ran around 27% plus margin. So any direction you would like to give? I mean how should we look at this number going forward? I mean will we be able to sustain this or improve from here on?

So overall, if you look at the expansion, which is happening in margin from 21% to 27%, more -- the way we look at -- from a margin perspective and going ahead, the way we are looking at it, we are looking at margins to flow from top line. We are looking at profitable growth. And the cost initiatives that we have taken over the last 1 year, and we are looking at enhancing the productivity not only in India business, but across the company will help us in terms of maintaining healthy margins, which will be close to where we are positioned today. But also, I would like to talk about that we are looking at business not only from short term, but we are looking at business from mid- to long term, where there will be some of the initiatives maybe in the field of R&D and some of the investment which we will do to fuel the growth for the coming time.

The next question is from the line of Ashwini Agarwal from Ashmore Investment Management.

Congratulations on a very nice set of financial performance. Two questions. Could you provide an update on the lozenges business? I note that, that word has come up like a couple of times in your company summary. So obviously, you feel quite strongly about it. Where is it now? And where can it go to?

Yes. So our lozenges business, we have very strong franchise and relationships with some of the large multinational consumer companies globally. And as stated earlier, we are amongst the top 5 in some of the selected geographies, which includes Russia, CIS, parts of APAC and Australia. We are the largest manufacturer for these multinational clients and respective brands. We are currently at a stage where we are investing on the R&D side to come out with different varieties of lozenges because our current portfolio comprises of a lot on the cough and cold segment. While we have been very aggressive in terms of introducing and discussing these new concepts with our partners, our attempt right now is to go beyond the conventional cough and cold and introduce concepts like immunity, which are going to be extremely, extremely relevant as we look at the post-COVID scenario. What we can say is we -- our current focus is to strengthen and deepen our presence with our existing clients based on some of these newer concepts. And I'll also add a couple of more anchor clients who could support the lozenges business, expanding in a few other geographies where we are not present.

Would it be possible for you to get the same multinational stance to extend coverage into Europe and the U.S.? Or is that already done?

There is a slight gestation period because there are some registration time line which one has to go through. But having said that, there is still a lot of opportunity in geographies where we are currently also present. Because we believe that some of the new concepts, particularly centered around immunity, we'll see a lot of traction going forward in this space. Having said that, these things take time because you're dealing with the large clients, and you have to go through the entire development cycle.

Could you share with us how big is the lozenges business?

See, there are multiple reports which actually state -- which actually kind of affect the market at close to $5 billion to $7 billion. Having said that, what we operate is in the complementary medication and wellness segment, and that is close to 30%, 35% of the overall market opportunity. We don't want to spread ourselves thin across plain confectionary lozenges, and those plain vanilla segments. We are very clear that we will be operating in a space which is much more niche and which kind of goes through the registration cycle, which is very similar to conventional pharma products.

Okay. And then other thing was on API. You mentioned in the opening comments API has been quite well for you over the last 1 year. What are the plans here? Because this is again an area where you have a [ sustained ] capacity apparently..

Yes. See, we have a very selective play as far as the API business is concerned and strong market clients for whom we are dedicated supplier. What happened with the API business last year was, especially in H1, there were certainly some level of stocking which happened from the buyer then given the uncertainty in global markets. Our mid- and long-term focus as far as our API business will continue to be much more selective and focused. We will certainly be expanding our portfolio base. But again, we are not talking about as part of launches of 15 or 20 products. We are looking at some 3 to 4 niche products, which we want to play in and which we are working on, which should be ready for the market over the next 12 to 18 months. So that's the way we are really thinking about our API business. In addition to that, part of our EPI business will also be aligned to our overall ANDA strategy. So as we have discussed earlier also, We want to kind of increase our filing run rate. We currently have a run rate of 1 to 2 filings per year, which over the next 12 to 18 months should go up to 3% to 4%. And some of these ANDA filing, which we will look at will certainly be supported at the back end by our API business.

The next question is from the line of Rahul Jeewani from IIFL.

Now as far as the outlook for the India business is concerned, this year, we saw very strong growth despite the overall market being weak. Now as far as the recovery in the domestic market is concerned, April and May have seen very strong growth on some of the acute therapies. And I'm assuming that our Rantac and Metrogyl brands would have also seen some sort of an uptick in prescriptions. So given that background, do you see that for FY '22, our India business growth could be higher than 13% to 14%, which we have been delivering?

Rahul, as I stated in my commentary, conceptually, the CAGR growth that we have demonstrated over the last now 4 years has been 13%, 14%, which has been market beating. And obviously, we are looking at where we stand from a productivity perspective where we have got 2,000 people and the entire new go-to-market strategy and the transformation that we are putting in place, we are looking at that how do our productivity in our last investor presentation, what we spoke should grow at around healthy pace 12% to 14%. So that is where we stand with our organic brands, the initiatives that we have taken in terms of how do those brands become bigger, beat the market as they are leaders in their space. And with the newer initiatives that we are taking in with the help of entire adoption of a combination of digital and physical presence should overall help us to deliver market-beating performance.

Sure, sir. And on Metrogyl and Rantac, so last year, our prescriptions were impacted to some certain extent. So have we seen prescriptions in these 2 products coming back for us now?

Yes, if you look at the Rantac performance, we have been handsomely growing at around 15% plus as reported in IPM. And we are fortunate enough that the entire season for Metrogyl also came back, and we saw a good uptake in overall Metrogyl prescription across -- because in Metrogyl, we have around 10 SKUs. So across all the 10 SKUs, we could see a good uptake in terms of in terms of product being adopted at the prescription of the customer.

Sure, sir. And on the CMO business, we have seen very strong growth this year. So historically, our CMO business has been growing at around 11%, 12% rate. But this year, we saw almost 27% growth in the CMO business. So is there any one-off component sitting in there? Or what led to such strong growth on the CMO portfolio?

Rahul, it looks like that this number seems to be not correct. In any case, we -- this percentage where from you are getting, we can't comment. And so we can take this offline, but we'll give you something that can be answered now.

Strategically, without comment -- I mean, I don't want to get into the number which you have stated Rahul, because there seems to be some deviation. But having said that, yes, our CMO business has grown very strongly. In fact, Q4 performance for CMO was much stronger than what we saw throughout the year. But this business has to be kind of analyzed and tracked over a much more longer period. What we maintain and what we have discussed earlier also, our focus is that how do we expand our CMO client base from 3 key customers, 3 to 4 to almost 6 to 7. And we are -- our efforts are underway to do that. But more importantly, with the current client base, which we have, how do we further deepen and strengthen our relationship. And the good thing is that with the level of R&D, which we are doing, we have got more airtime with our key customers in talking new concepts, and hopefully, some of them should kind of materialize over the next 1 year.

Sure, sir. And lastly, on the margins. So you said that some of the cost initiatives, which the company has been implementing, that has allowed us to derive structural improvements as far as our cost structures are concerned. But this quarter, we saw that with other expenses coming back, our margins have gone down to 23.5%. So with respect to margins for next year, fiscal '22, so we should be working with the full year number? Or the fourth quarter run rate which you had? And in terms of any guidance which you can provide as far as margins for FY '22 is concerned?

Rahul, so what I shared earlier in terms of when we look at from a margin profile, margin will flow from the top line where we are able to achieve, and we firmly believe in profitable growth. That is what we have laid down as a source of running the organization. And equally, if you look at quarter 4 in isolation, concentrate in quarter 4, March is a muted month, particularly for India as overall reported in IPM. So that was one-off. But with margins flowing from the top line, which is market beating, and equally, some of the cost improvement measures that we have taken in and looking at how do we announce productivity across the company, I think we are very much there in terms of we'll be able to maintain our healthy EBITDA margins as we are positioned today.

The next question is from the line of Monish Shah from Antique Stockbroking.

Sir, my question is on the exports business. So what would be our growth plans and growth drivers for markets like Russia, South Africa and some of the Southeast Asian markets?

So as far as Russia is concerned, we are planning to have a couple of launches through financial year 2022. Our registrations are in very, very advanced stages. Having said that, given the current market situation, we want to be very mindful of what is the right time to launch these products. If things improve from here on, then we are extremely hopeful that we should be in a position to have these couple of products launched by September of the coming financial year. Overall, the situation were great, not only for us, for the entire pharma market in Russia with secondaries being significantly impacted. But we do see improvement gradually kicking in. South Africa has done extremely well, and it's a mix of public and private business. The good thing is we have good visibility on our public business side, and we worked a lot on site variation projects to ensure that we have sourcing done from India, which kind of helps us better manage costs as well. So we will continue to see the good mix and traction in public and private kicking in with the visibility, which we have in hand right now. As far as APAC geographies are concerned, now APAC is something where our focus will be to grow these markets through our CMO business. And as mentioned earlier, we are looking at ramping up our R&D with our CMO customers and looking at some variants in dosage forms such as lozenges, but that takes time. The efforts are already underway.

Right. So for on the RoW business, do we intend to open up new markets? I mean are we working on that direction? Or we are focusing on the markets share here?

Our efforts are to continue in the markets where we are present. We are present in almost 40, 42 markets. We want to deepen our presence there. And the other, we discussed South Africa and Russia in detail because these are our home markets. But even in other markets, our efforts will be to deepen our presence through our expanded portfolio. So what we are really looking at is how do we kind of have a portfolio engine over the next 12 to 18 months, which gets us faster registrations, faster approvals so that we can expand our basket. But right now, there is no real intention of expanding our geographic base.

All right. And sir, lastly, on the CMO lozenges business, there, we intend to expand our capacity, given that we are confident of the growth continuing forward...

We already have building capacities for lozenges as far as our CMO business is concerned. So there's no real immediate plan to expand on our lozenges manufacturing capacity. We are well covered for that even if our business has to go up by almost 1.5x from here on. That's not a challenge. Having said that, CMO business goes much beyond lozenges as well. Many of our current customers are talking about some other dosage forms as well, and those are also concepts underway.

Okay. That's helpful. And sir, lastly, on the lozenges business here in India, do we plan to take more products via OTC, too? Or is something too early to say right now?

Initial stages of conceptualization from our side, we will discuss more details at the right time.

The next question is from the line of Nitin Gosar from Invesco.

I wanted to understand how do we see pediatric and respiratory?

Sorry to interrupt you Mr. Gosar. We cannot hear you very clearly.

Is this better, ma'am?

Yes, this is better.

Okay. I want to understand, team, how should we see pediatric and respiratory? Until so far, we had some of the other complementary for existing therapy, like it could be metabolic or it could be hypertension along with nephrology. But with pediatric and respiratory, maybe slightly more concentrated and more specialized doctors who will be seeking our attention for the first time. Could you help us understand how we intend to build relationship out there? And how is our positioning out there?

So let me take this respiratory to 2 parts. Respiratory is a combination of cough and cold, anti-allergics, and there are a variety of products that doctors prescribe. And when we look at respiratory, which has been -- because pediatric patients land in the clinic of pediatricians where J. B., as a company, has a very good relationship based on our portfolio, which is a combination of Rantac franchises, which have got syrup formulations and there are some other products which already we are going. And equally, when we talk of respiratory, we also talk of physicians and pulmonologist. Am I audible?

Yes, yes.. Yes, sir. You're audible.

I thought somebody [ said something ]. So there are a portfolio mix, which we already have put -- taken initiatives to put half a dozen products in the market, which is complementing when we go in the clinic of pediatricians, physicians and chest physicians. And there's an ongoing relationship building exercise with the help of entire medico-marketing excellence, which we have taken some steps in getting close to the customers and how do we help our team when they go in the offices of doctors. So overall, pediatricians, we as a company are closed. And physicians also with our -- with the work that we have done in the world of hypertension, so they know J. B. Chemical as a company. And equally, pulmonology as a category, basically starting from me and there are people who are working with me and the team. We are very -- we know this subject over last decade or the previous experience that we have. Just to talk to -- within -- we are not getting into the world of inhalation. But we conceptually want to build our franchisee around cough and cold, anti-allergics, oral corticosteroids, antibiotics, antivirals. That is where we stand when we talk of respiratory, which is a combination of pediatricians and chest physicians.

The next question is from the line of Aditya Khemka from InCred AMC.

Sir, firstly, on the promotion and traveling expense savings that we keep talking about, so how much would have been saved in FY '21? I saw in your annual report of FY '22, the 3 costs put together was about INR 155 crores, traveling can -- and commission on sales and promotion expenses. So that was about INR 155 all in, in FY '20. How much would that be in '21?

Yes, Aditya. Vijay here. I think in promotion and traveling is primarily driven because of the lockdown. So the amount, what you are saying, is true. It's just around INR 155 crores. In the current financial year, this is at a very subdued level of close to about 100 and -- in the range of about INR 135 crores. I don't have the exact number, but the saving is not there to a great extent. Because after the H1, the normalization was gradually starting, and we also started our field activity. So I would not put that as a big potential saving that we had got and got reflected. In a way, things are now gradually back to the normal level. And the savings that we had in the early part was not that too big in the absolute term.

Understood. Vijay, sir, I asked the question because your total other expenses was INR 417 crores in FY '20. And this year, we have done almost INR 400 crores. And this is excluding R&D. So including R&D, maybe last year was INR 440 crores. And this year, we are at INR 440 crores, so similar numbers Y-o-Y. But there would have been some escalation in your power and fuel costs, transportation costs because those things have gotten there because of the COVID situation. So you must have saved cost somewhere to compensate to report flat numbers. And if that saving, you are paying is only INR 20-odd crores, then -- which means the inflation in power and fuel, freight costs, et cetera, was only 5%. Can that be true?

I think the math seems to have been done by you. This is not 100% true. Secondly, the number which you are reflecting is not excluding R&D. It is -- R&D is not separately otherwise published. But the fact of the observation of yours is, on logic, true. Yes, there are second normal activities like power because we, as a part of essential service, we continued our operations. So with the increase in the overall business volume, the power cost does go up. But there are some advantages because of this lockdown, and that overall helped us not to have the higher expense base growth. And that's where the overall expense we would have observed is close to around INR 400 crore. So I don't think that we should more get into the numbers of how much would be saving or how much would come back and all. The management's focus is more on which are those cost efficiency improvement areas where we can try to optimize and then try -- and that drive only our main attention and focus is going forward, which only is going to drive our EBITDA expansion that we are looking at, at present.

Understood. Sir, another question on similar lines. We had export incentives of INR 29 crores in FY '20. And this year, obviously, if there were export incentives was there only for 5 months. Can you quantify how much export incentive did we realize this year FY '21?

No. I think this export incentive, there is a lot of confusion. More particularly, the confusion has emerged after 1st of January. But what is the challenge. I mean for us, the incentive is not reduced to a great extent, subject to only the capping which came in somewhere in the quarter 3 of the financial year. So from the accounting point of view, we do have to accrue the benefit, which is entitled as per the scheme, which we have done. The only challenge as of now, which tactically all exporters are facing, is the new scheme of RoDTEP where the benefit of percentage is not defined. So that is something is an ambiguity as of now and it's something which anybody's guess. We can't comment upon what would be that percentage the government will come out with. So subject to that, our export incentive is more or less in line. Of course, a little lesser than what it would have been going by the growth in overall international business, but that is what it is, because there is an ambiguity about the incentive rate as of now.

Got you. Got you. Sir, also another question on the business. So we said that we were planning to ramp up our export business, and we are investing in filing more A&D. That sort of dismal impression we are underutilized in terms of our current capacity that we have in exports or we see more opportunity going forward, and we'll need more capacity to cater to that opportunity. So can you talk a little bit about what your current capacity utilization is on the export side in terms of manufacturing capacity? And therefore, do you need further CapEx this year? How much in the next 1 or 2 years?

See, I think we -- the capacity utilization varies across different dosage forms. The average utilization for us currently is pegged around 60% to 65%. Of course, given the export market situation, it tends to be slightly fluctuating over different periods of time. For us, what's important is to -- for us to expand our export business, what are the new products we are working on, which we -- which should have a good commercial opportunity in markets we are already operating, right? We have some initial plans already laid out, and the next 12 to 18 months will be to kind of focus on development of these projects and get them at least to the filing stage. Capacity utilization, as of now, doesn't seem to be a challenge. And if we have to take a call, we believe we'll be in a better position once some of these products are firmed up and once we have some more visibility on what the actual offtake volumes will look like. And that call can always be taken 1 year down the line. But right now, we are well covered.

Right, sir. So any guidance you want to give us on the CapEx side as to how much capacity -- capital expenditure you'll have to incur in FY '22, '23?

So right now, our CapEx will go in the same -- the maintenance CapEx, which has been historically there. We are close to around INR 50s here. And that's what we see. There's no real incremental CapEx for adding capacities. Having said that, we'll certainly take a stock of the situation maybe 12 months down the line in terms of how much more incremental capacities we need to add. But right now, it's -- largely what we are foreseeing is maintenance CapEx.

Understood. And one last question on the domestic business. So on the domestic business, you said you're looking to include amount -- increase amount productivity by -- and at the same time, you're also entering the new segments or, like, pediatric and respiratory. Just -- could you talk a little bit about where the digital strategy or the physical strategy sort of features here? I mean, because it's the same number of MRs and the product basket is expanding. So how would you reallocate the brands to the MR? I know you guys have done an internal sort of reaching of the divisions that you have had and you have further the made divisions. So how do you incentivize the MR? How do you educate them? What is the gestation period required to get success in some of those new ventures?

See, the fundamental model or operating model of the rep detailing and all will not change much, right? We have implemented digital platform to augment the capabilities of our people on the ground so that they can get better, more airtime with the physicians. And in such times, they're getting face to face time with the doctors becomes difficult, there are multiple opportunities built in to do remote detailing. But the fundamental operating model of the rep going in calling on to the doctor, building the relationship and detailing new products does not change, right? And that is going to be the basic premise for us going forward as well. The digital platform also helps us build a better discipline and sales force excellence practices helps us monitor the practices of our teams on the ground. Our entire focus has been to -- when we have looked at this realignment is to ensure that there is enough attention, which is given to progressive portfolio as well. And we also, at the same time, have opportunities to leverage our current relationships with the same set of doctors. So as Nikhil was saying, talking about -- because we already have relationships with pediatricians, why can't we have 2 to 3 more products on the pediatric side? Because we already had relationships with cardio, diabetes, consulting physicians, why can't we get a couple of more diabetic products as well, because those relationships already exist. So our strategy remains the same. Bank on the relationships which we have. We don't believe that at this stage, we need to add more MRs. But to drive their productivity, we are augmenting them with better digital capabilities. That's pretty much it.

Thank you. I now hand the conference over to Mr. Jason D'Souza to take the questions online.

Yes. There is a question we received online from [ Shain ] Christie of Nomura. Gross margins are lower in 4Q. Are there any raw material specials that we are seeing? How are sales promotion cost in India are likely to rise in FY '22?

So there are some raw material price increase pressures, which overall the industry is facing. And conceptually, as a business continue the plan, conceptually, the commitment and the SLAs that we have laid down and the commitment to our partners across the globe. There were pressures in quarter 4, but I think over a period of time in next 3 to 6 months, that pressure should ease. That is the status as of now. And looking at the overall cost, which for India business operation, I think, we just stated rightly that costs are going to come back as normal because I think as of today, in the month of June, we have 95% of our people operating today and going in the clinic of doctors. And as we fundamentally believe that we are in a very growth-oriented market, which is growing at a pace of around 8% to 9% from a -- so the entire objective is to look at EBITDA margins from a perspective of how can we have market-beating growth. So we will not hesitate in investing in terms of what our people should be equipped to do in the clinic of doctors by helping them maybe what -- when talking with them on top of all digital initiatives, medical marketing initiatives. But we are very much confident in terms of how we can bring the best out of our people and deliver market-beating growth in India.

Over to you, Margaret.

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

First question on the...

Sorry, Naresh, audio is very low. Can you please speak a bit now louder?

Yes. Am I audible now?

Yes.

This is better.

Yes. So question was on the new found products, which you plan to launch in the nephrology. Can you help us understand what is the market size of these products in India and who are the competitors? And what sort of revenue are you targeting from these new products over the next 2 years?

So we can't get into detail. Is it Navin?

Naresh.

See, we can't get into detail in terms of what revenues and what is the market price. But conceptually, it is the relationship that we have with nephrology specialty. The products that we have launched are not the products which is first in line, but all the products are evolving from a supportive therapy prescription that would be in any prescription of a nephrologist. And we see as an opportunity that we can get a better output when we have our niche task force, which can go to the specialty and get the prescriptions from the doctors by actually participating with them in disseminating the knowledge. That is what we can share at this moment of time.

Okay. Okay. And second, on the cash balance, which is there around INR 690 crores. Net of debt also, it is around INR 650 crores. So what is the plan do you place there? I mean currently, are you finding inorganic opportunities that drive price where we can align -- which can align well with our existing set of portfolio where the returns are also sustained post the acquisition? Are you seeing that visibility as of now?

We are certainly very actively and aggressively looking at inorganic opportunities for our India business. As we had mentioned earlier also, we will be very aggressive in looking at value-accretive opportunities, something which aligns very well with our current operating model. And these discussions are always on. But you know it's always very difficult to pinpoint the time and really mention that when this -- something like this can get closed. All we can say right now is that inorganic opportunities are very, very important growth lever, and we are actively looking at such opportunities.

Okay. And lastly, can you help me in the overall capacity utilization, both domestic and exports?

What we mentioned earlier, also, we are looking at overall 65% capacity utilization. We would not want to get into details of how much is allocated for domestic and exports. Though I would also want to mention out there is a large percentage of our domestic business is also B2B based, right? And there are always more flexible options to service your domestic business.

The next question is from the line of Charulata Gaidhani from Dalal & Broacha.

Yes. I [indiscernible].

Sorry to interrupt you, ma'am. Your audio is not clear.

Hello? Is this better?

No, your -- the volume is very low, and it is not clear. Can you please check?

Okay. Is this fine now?

It is better. You may go ahead. We will let you know if in case.

Yes. Yes. I wanted to know if you could just come by here in terms of [indiscernible].

I'm sorry, ma'am, it's still not clear, so I would request you to please check your phone line and rejoin the queue. Thank you. The next question is from the line of Jayesh Shah from Ohm Portfolio Equi Research.

Big congratulations to the management team for the impressive work done. Nikhil, my first question, again, qualitatively is, do you think you have managed to get all the low-hanging fruits? Or you still think that there is some juice left for the next 2 years, which would set a new normal for the company and then the growth path? And the related question is, would you like to give us some targets over 3 to 5 years, maybe quantitatively, if not quantitatively in terms of milestone targets that you would look at and perhaps what the key investor would be expecting out of the management team?

So from a low hanging through perspective, it is as per the situation in which we are staying and unfortunately -- am I audible?

Yes, sir, you're audible. [Operator Instructions]

Unfortunately, we had a very difficult year. But in a difficult year also, I would like to complement the team which came across and there was a full business continuity plan from, overall, from manufacturing, supply chain, commercial units. So as and when the opportunity comes, whether we are looking at organically, how do we continue grow and beat the market, look at maintaining our EBITDA margins, which are close to the current financial year for the coming time. And equally, from an inorganic opportunity as and when we -- because there are some assets, which we are evaluating from an inorganic opportunity, those are the opportunities which we as a company are looking forward to. And you were asking about some color in terms of how are we looking at business in next 3 to 5 years and what is the expectation from PE Fund. The fundamental name of the game, Jayesh, is that what I believe in, how do we have the right people in the bus who are going to drive the aspiration for the company, which should be more delivering profitable growth and creating value for our stakeholders and shareholders. That is what we believe in and that is what we have demonstrated. I think what I was talking about in last 4 years with the CAGR growth of around 13%, 14% and with ROCE improving from 14 to now 42 which we have achieved. And I'm confident, with the right team that we have in place at JV, we will continue to look at all the opportunities, which are there and continue to deliver market-beating growth, profitable growth and create value for our stakeholders. That is what I can state at this moment of time.

Right, right. Just coming back on cash, acquisitions and dividends. In the past, J. B. Chemicals used to have much higher payout, if I look at last 3 years. So any stated dividend policy? I can obviously understand if you are waiting to look for opportunity, but any time line after which you could actually state that the dividend payout would be much larger than what it is, given that your business is not so capital intensive?

Jayesh, Vijay here. We have a dividend policy. Maybe you would not have had a look at it. But I think in history, company did have made payouts, which were, in some years, much larger. But as a company going forward, what we believe in that we would follow some consistent dividend payout policy. The company is generating good amount of cash. And we will continue our leadership of rewarding the shareholders. This year, we have announced a dividend of INR 16.5 per share. And I think as a management, we believe that this is a reasonable amount of rewarding to the shareholders going by the profitability that we have. It is in line with our policy. Our policy is about 10% to 30% of profit. Of course, Board do take cognizance of the future plans, and then the decisions for the payouts are taken accordingly. So as of now we would maintain the dividend payouts. The quantum of it is, as of now, reasonable. And in future, it would be based on the prudence what the Board would guide us. This is the plans that company is looking at as of now.

Yes. My limited point was your business does not require that much of capital. So you could easily have a dividend payout policy of much higher than 30%.

This is not what the guide or the Board considers. I mean we are now looking into a forward and futuristic growth for the business. And that's where that comes to us as a strength. And that's where I think paying out the cash is not a prudency. Management would take the cognizance of it, how to effectively utilize the cash sitting on the balance sheet.

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

Yes. My question is on working capital. Last -- last, last quarter, we saw it spiking and there's some moderation. But do you expect working capital to be similar levels? Or you expect release of cash in fiscal '22?

I think working capital is quite dynamic in the current scenario. Of course, your observation is correct. In the past, it was slightly updated. We are constantly monitoring it. It has come down to our expectation. But I think going forward, it would more be driven by how the market shapes up, particularly the international business that we are into. So this is -- I would not say that there would be a very big amount of a working capital release that may happen. Because as of 31st of March, we are at a very reasonable level of working capital. There might be a little bit of further savings, which we will try to aspire for. But I don't think that now, any significant release of working capital is feasible.

Okay. And second one is more of a clarification. Did I hear right that Nikhil's statement on expect to maintain fiscal '21 EBITDA margins of 27 percentage?

Not -- what I shared, Prakash, is conceptually the way we are poised, we'll be able to maintain EBITDA margin as of FY '21. And it would be probably at the same range. That is which we can share at this moment of time.

Okay. And lastly, the cash, which is lying, what is the nature of investments we are into?

So Prakash, we are evaluating some assets as last time in my investor call also as shared. And there are some assets which are -- which we're evaluating from a perspective of an inorganic opportunity. At the right moment, we'll be more than happy to share the details because the engine that we operate, particularly in India, I've had to talk about. Conceptually, if we are growing at a pace of around 15%, which we have demonstrated the growth philosophy, we'll be more than happy to invest in some inorganic opportunity and complement our business and overall improve the value for our stakeholders by improving, overall, the top line and margins. That is what we believe in.

But just some clarity in terms of looking at assets within our core areas where we already have significant market share like cardio and gastro? Or it would be totally new areas where we are planning to expand?

It can be a combination of both, Prakash.

Okay. Okay. Understood. And last one was on the cash, which is lying in the books. What is the quality of investments that has been done today?

Today, we have a policy which is very clearly laid down by our Board. We generally deploy this cash into the mutual fund, a very highly rated papers, triple rated generally of the debt category, and that's the policy that we have been consistently following. The investments made are also public in terms of annual reports, so one can have a look at it also.

The next question is from the line of Ayaz Motiwala from Nivalis Partners.

I'll go back on the question asked earlier...

Sorry to interrupt you, Mr. Motiwala, your audio is not very clear, sir. Can you please come a bit closer to the phone if possible?

Sure. Is it better?

Yes, better. Better.

Yes. Sorry. I thoroughly appreciate you're out there, very close to what I'm speaking. Sir, my question was regarding the gross margins and the OpEx improvement, which has resulted in what Nikhil called out the sharp sort of 700, 800 basis point improvement in EBITDA margins over the last 3 years which is quite a dramatic number. Spend some time on the -- on some of these initiatives, which have led to these margins and the confidence that this will sustain rather than sort of pinpointing it that if it will be a '21 or '22 margin. That would be very helpful, sir, that you've had nearly 400 basis point improvement in gross margin. What were the factors which have led to this thing from product to raw materials to any other sort of aspects? And then in OpEx, you had a near 700 basis point savings. Most of it is dramatically coming in the last year, I would say. So should that -- that, if you could express, sir, please?

So I think we would answer this in 2 parts. The EBITDA expansion in the current year is also the factor of the benefit due to the subdued access because of the lockdown. Operationally, it could not have expanded, honestly, with this level of expense base that we are holding. The other part you are talking about, the gross margin, that is actually speaking, it's a focus of the company. We have been focusing more on the progressive portfolio and trying to improve on our product mix, which brings more profitability at the bottom. And that is reflected in the numbers for last 3, 4 years with the cardiology segment performing better to our expectation and some of the international markets, particularly some of the regulated markets as well as the CMO business that we are into. So those are all combination of which has helped us to improve the overall gross margin. The EBITDA expansion of the current year, I would say, it is slightly not in the normal range. In the ordinary business, the EBITDA doesn't expand in such a big way. But yes, this was an abnormal year. But we are confident that some initiative would definitely help us at least maintain or sustain the range in which we are as of now.

Right. And sir, like the way you described about cardio, international markets and CMO contributing towards a certain business mix, which has better gross margins, if I understood it correctly. On a similar note, what part of the OpEx is where we think you have talked about the efficiencies of the MR team and any other -- about 3 or 4 interactions. Could you highlight some of those which are, as you said, as an organization, building on and as takeaways, which means they would basically stay as benefits to the organization?

I think this would be too much of a detailing of it. As in the early remarks, Nikhil also mentioned that as a team, we are more looking into the -- how to optimize our overall operational expense base. Getting into some of these details in today's dynamic, while it's very difficult to pinpoint and talk about some numbers, how it will shape up. So I think we would not be able to comment much on it as of now.

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

Sir, I just wanted to know if you could just give us some medium-term outlook. Then over the next 2 to 3 years, what's the overall revenue growth that we can achieve? Can it be mid-teens, high teens, if you can just directionally guide us there.

So Neelam, I think what I shared in my overall commentary that what we have demonstrated over the last 4 years with a CAGR growth of around 13%, and that is what team has shown the capability of delivering. And going ahead, I think what we have shared also is from a perspective of how do we make our big brands bigger, how do we deliver market-beating performance, how do we get the best out of the newer initiatives that we are putting in place, how closely we can be of maintaining the same margin, same range EBITDA margins going ahead. I think the team at J. B. Chemical, the leadership team at J. B. Chemicals is more than confident in delivering value for the stores, deliver profitable growth and look at how, particularly in India, which is 50% of our business, deliver a robust market-beating growth and look at what is the best opportunity, which is available in international markets, which are Russia and South Africa, our home markets and in the world of CMO, which Kunal was talking. Look at augmented growth going deeper into the markets where we are present by introducing new products as we are strengthening our R&D capabilities. That is a commentary I can give as of now in terms of what is the horizon for next 2 to 3 years.

Okay. That's helpful. And just lastly, I wanted to know that we have had a good 27.5% EBITDA margin this year. I've given that our asset utilization stands at 60%, 65% blended for the entire business altogether, with growth coming ahead, going ahead and improvement in -- scope for improvement in the Russian business, can we see, in the medium term, these margins go further up and maybe cross 20% level?

Neelam, I will not be able to give any specific commentary on any number, but what I shared earlier. In terms of from a capacity that we have for our manufacturing plant, which is close to around 60%, what Kunal spoke and what initiatives we are taking in terms of cost improvement measures and more EBITDA margins flowing from the top line growth, which is market leading, we will be in the same range of maintaining the EBITDA margin as of what we stand for the year FY '21.

Neelam, just to add to what Nikhil mentioned, as we continue our focus to drive more efficiencies in our current business line, equally, the focus is to invest for future as well. So certainly, we are looking at expanding our portfolios for some of the international markets for the Indian market, and those are things which we need to be cautious of. But the intent and the overall objective is to be close to the same range as we have recently did about.

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Jason D'Souza for closing comments.

So we don't have any closing remarks, Margaret. So I think with this, we can end the call. Thank you, everyone, for participating. And we will ensure that whoever's questions were not answered, we'll make an attempt to answer those questions also. Thank you, everyone.

And from my side, thank you. Thank you all for being patient here. This is Nikhil Chopra. I, along with my team, thank you all for participating in our first conference call, and we'll be more than happy to meet you next quarter. And I wish all of you safe health. And with the markets opening up, I think we are looking for a better future. And at the end of the day, the way we think at J. B. Chemical & Pharmaceuticals as a company that what -- how we can work towards bringing more and more smiles on the faces of patients who, tomorrow, are prescribed J. B. Chemicals medicines with the help of the work -- with the work that our people are doing maybe in the manufacturing plant, maybe in the markets with the help of doctors. So that is what we believe in creating the entire ecosystem, where we can contribute in our own way to the well-being of the patients in India and across the globe. Thank you. Thank you once again all, and we'll meet once again next quarter in our conference call.

Thank you. On behalf of J. B. Chemicals & Pharmaceuticals Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.