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

Welcome to J.B. Chemicals & Pharmaceuticals Limited Q2 FY '22 Earnings Conference Call as on 12th of November 2021. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jason D’Souza, Head of Investor Relations at J. B. Chemicals & Pharmaceuticals Limited. Thank you, and over to you, sir.

Thank you, Lisa. Welcome to the earnings call of J.B. Chemicals & Pharmaceuticals Limited. We have with us today the management of J.B. Chemicals & Pharmaceuticals, Mr. Nikhil Chopra, CEO and whole-time Director; Mr. Kunal Khanna, President Transformation; and Mr. Lakshay Kataria, Chief Financial Officer at J.B. Chemicals & Pharmaceuticals Limited. Before we begin, I would like to state that some of the statement in today's discussion may be forward-looking in nature and may involve certain risk and uncertainties. A detailed statement in this regard is available on the Q2 FY '22 results presentation that has been sent to you earlier. I would like to hand over the floor to Mr. Nikhil Chopra to begin the proceedings of the call and give his opening remarks. Over to you, sir.

Thank you. Thank you, Jason, and good afternoon, everyone. A warm welcome, and thank you for taking time to join us for this discussion on the operating and financial performance of J. B. Chemicals & Pharmaceuticals for the quarter 2 FY '22. I will start with an overview of our performance during the quarter and share an update on the progress made and the objectives achieved in the first year following the ownership and management changes. Following which, Lakshay Kataria will take you through the key financial highlights, then we'll be happy to take all your questions in this call. Before I get into these discussions, I would like to once again warmly welcome and formally introduce Lakshay Kataria, our new CFO, to all of you. Lakshay is a Chartered Accountant with around 2 decades of experience across finance and commercial roles. We look forward to his participation in all our strategic initiatives, and he will be jointly participating with us in the outreach to the investor community as well. Also, I have with me Mr. Kunal Khanna, who heads the entire operations, part in J. B. Chemicals, and he has been there also a part of new management at J.B. Chemicals since last 1 year. Now to talk to you about the operating performance. Despite the challenging conditions, we continue to witness strong revenue momentum in the second quarter. The domestic formulation business continued to record stellar growth, outperforming our internal parameters as well as the IPM benchmarks. At the same time, our International business performed well despite another challenging period as business activities and supply chains remain impacted due to the pandemic-related issues. During quarter 2 FY '22, revenues recorded were INR 593 crores and INR 1,199 crores in H1 FY '22. Our reported Y-o-Y growth is 34% in quarter 2. Here, I would like to highlight, and you may recollect, that in quarter 2 last year, we had experienced some logistic-related issues and that led to some deferment of sales from quarter 2 FY '21 to quarter 3 FY '21. After adjusting for this deferment in the base period, we recorded robust growth of 18% in second quarter of FY '22. So this is what I wanted to bring to the notice of the investor community in terms of where we stand in terms of our performance for FY '22 quarter -- second quarter. This puts us on the course to achieve the targeted business growth as per plan and creates the platform for ongoing expansion. Our operating EBITDA margins remained healthy. Excluding one-off costs and the noncash ESOP charge, the operating margin for quarter 2 FY '22 came in at a 26% margin for this quarter. Also, it needs to be noted that these margins have been delivered on largely normalized cost structure and significantly higher logistics and supply chain-related expense in the quarter under review. Coming to our domestic business. Our domestic business maintained the quarter 1 momentum into the second quarter, we delivered 38% growth for quarter 2 and 39% in first 6 months of the financial year. Our large brands have continued to make a significant contribution to our growth with 5 of our top brands in 300 IPM brands, not only recorded market bidding growth but also outperformed the covered molecule market. As per IQVIA, MAT data, September 21, JBCPL is the fastest-growing company in top 30 in IPM with a MAT growth of 28% versus covered market growth of 16% and IPM growth of 18%. Also, I would like to bring to the notice of all of you that our IPM performance is even more commendable since the portfolio is almost entirely in non-COVID therapies. In our international business, the South Africa business recorded growth in both public and private market. The South Africa subsidiary gained 10 ranks in the country to reach 15th rank as on September '21. In Russia, the business rebounded well towards the end of the second quarter, and we hope the momentum continues in the third quarter. The ROW branded generic markets continue to be challenging during the COVID-19 lockdowns in key markets, but we are glad to share that we have managed to secure one new marquee client for our lozenges in the CMO business. However, due to muted demand in the cough and cold segment, our CMO business remain subdued. Now I would like to spend a few minutes to update you on the key priorities driving the business. I will also focus on the initiatives over the last 12 months since the new management team has took over the entire charge at J.B. Pharmaceutical. As you may know, one of our main objectives while driving growth is therapy diversification in the line with our core strengths of domestic formulation business. To achieve this, we have rolled out several programs, including implementation of revised go-to-market structure across entire nationwide sales force. We have also entered into progressive and complementary therapeutic segments such as diabetes, nephrology, respiratory and allergy by launching 3 new divisions and subsequently around 15 new products in the market in last 1 year. This has largely been achieved by repurposing the existing resource framework, resulting in J.B. Pharmaceutical establishing its position as the fastest-growing company in top 30 pharma companies as per IPM data. We have improved our productivity by fully automating the sales force with a full coverage of iPad rollout to our field force on the ground, insights to increase in clinic effectiveness of our representatives when they are visiting doctor's clinic, invested in technology and training. Also, we have expanded our doctor engagement tracking mechanism, used medical evidence-based studies to enhance our patient connect and establish more sales force headquarters to go deeper into untapped markets across the country. These initiatives are future-oriented investments that we believe will allow us to get an increasingly larger share to our Indian health care spending over time. And thereby, -- and there are promising signs of these initiatives that have been -- that I've spoken over the last few minutes, which is we have already seen per person productivity improvement of 25% growth from INR 4.5 lakh to INR 5.2 lakh per person. Domestic business is now achieved a monthly run rate of around INR 1 billion. And I'm happy to share that the new product contribution, which was negligible in the past, is now close to 4%. We have even seen rank gain and market share improvement. These results are an outcome of continuous focus in areas of best-in-class execution excellence and driving sales force excellence parameters, well supported by digital technology and medico marketing engagements with the health care professionals. In addition, there are several other operating and functional initiatives that has been put in the play. In our specialized CMO business, we already have differentiated capabilities in medical herbal lozenges with global regulatory approvals, low-cost manufacturing infrastructure and existing relationship with global major partners. We have now extended the focus from cough and cold segment into new area of lozenges for wellness and immunity. We look forward to a deeper engagement and more widespread coverage in this market to deliver sustained growth. In the international business, we have also deepened our presence in our established markets on the back of more launches and accelerated filings while also working on stabilizing our operations in Russia. We have scaled up our R&D initiatives with an expanded team, more CapEx commitment and enhanced systems to accelerate the product pipeline across the portfolio of business and geographies. We are supplementing our various organic initiatives with external collaborations and continue to evaluate strategic and M&A opportunities as well, and you will hear more of this in the coming time. We have holistically evaluated our cost structures with the objective of improving cost efficiencies while maintaining service levels. Direct cost reduction has been the primary objective of cost rationalization exercise. Also importantly, following the acquisition of controlling stake by KKR last year, we have the support of a strengthened Board and best-in-class governance practices that are contributing substantially to all our progressive initiatives. With that, I would like to reiterate that despite the challenging economic environment, we continue to be positive on the business for the rest of the year. Our domestic business is now on a strong foundation, which will help us to sustain the business growth over the next few years. Our ability to launch products has also been successfully tested, and we are glad to see the progress made on the new product launches, even though we were late entrants into those molecules and categories. The new go-to-market model has been successfully launched and tested. This model will be the pivotal as we continue to aim to outperform industry growth. Our investments in R&D will drive growth in the international markets, and we remain optimistic about our unique position in the CMO segment. We have added one new global name as a client, and we look forward to adding many more based on our credentials in the contract manufacturing business. We look forward to continue driving execution to create long-term value for our stakeholders. On this note, I will conclude my opening remarks, and now I request Lakshay to share with you a brief perspective on our financial performance. Thank you all for patience hearing. Over to you, Lakshay.

Thank you. Thank you, Nikhil, and a very good afternoon to all of you, and welcome to our earnings call. Before I move to the financial performance, I would just like to share that it's a matter of great pride for me to be a part of J.B. Chemicals & Pharmaceuticals. I think it's been a very strong legacy business that's been built and a company that's on path of transformation. So very happy to be a part of this team and look forward to also meeting you and interacting with a lot of you over the next couple of months. Yes. So I'll quickly move to the quarter that's gone by. So overall, as Nikhil indicated, we saw a revenue growth of 34%. So our reported revenue was INR 593 crores. And as Nikhil mentioned earlier, we did see some sort of delays in shipments, et cetera, same quarter last year. So on a like-to-like basis, the growth for the second quarter will be closer to 18%. And where -- when I sort of split it up between international and domestic business, the domestic business saw 38% growth during the quarter. And when we look at our performance versus market and we look at IQVIA data, our domestic formulation business has seen a growth of 28%, where the IPM growth for the market stands at 80% and the covered market growth stands at 15%. So overall, it clearly indicates a significant outperformance in terms of growth despite not having a very active COVID portfolio. Growth momentum here is largely driven by progress initiatives taken by the company. Talking a little bit about the international business. The international business reported a growth of 36%. The logistics-related disruptions we covered earlier are largely visible in this part of the business. And the overall growth rate is also lower accordingly. Certain parts of our international operations have seen headwinds, while businesses like South Africa, et cetera, continue to do better. But certain parts are seeing those headwinds and some of the logistical challenges. From a gross margin -- coming to the cost side now, gross margin was at a healthy 65%, and this now has started seeing some level of inflation on the raw materials and the packaging materials type coming through, which we have tried to manage through cost mitigation. As we move ahead, as each of you I'm sure is sort of tracking what's happening in this space, the heat on prices is only going to accelerate and hence, the need for us to really step up the pedal on cost mitigation is even more important. So with various initiatives that we've introduced and Nikhil alluded to, we are also building a little bit of augmentation of our internal effort with external support to drive some structural cost efficiencies in the business. If I look at our operating expenses, all of you would have seen a significant increase in our operating expenses this on year on a year-on-year basis. If I was to sort of deeper -- the increase we saw this year, it was attributed to broadly 3 components. One, as we've come out of COVID, some of the operating costs have started to sort of come back, right? And we have also seen escalation in the fuel and freight costs during the quarter. Second, we have a noncash charge towards ESOP of about INR 13.2 crores during the quarter. And there have also been certain nonrecurring advisory and consultancy services, which have been used for various transformational initiatives which have impacted the other expenses this quarter. So if you really look at from adjusted EBITDA standpoint, we have explained these variance and the underlying operating EBITDA in our investor presentation. Other income during the quarter was pretty strong. And this was largely led by the fact that we saw good mark-to-market gains and returns on our mutual fund portfolio. So that continue to be a good story. Overall, from a cash flow perspective, we've enhanced our cash position. We have a net cash of about INR 740 crores, which is about roughly INR 80 crores higher than where we were in March. This is despite the fact that we have taken some conscious decisions to up our operating inventories given the supply of security concerns that we are seeing from the operating environment. So as we move forward, we expect the business to progress by largely leveraging the existing infrastructure and resource space, which includes our manufacturing setup, our distribution setup and the relationships. We are also seeing financial performance reflect the strategic initiatives that the team has driven over the last few quarters. We are now focused on driving profitable growth and maintaining strong cash flows in a very, very turbulent time. With that, I conclude my opening remarks. We would now like to open this forum for an interactive session with all of you, and we'll be happy to respond to your questions. Thank you.

[Operator Instructions] The first question is from the line of Rahul Jeewani from IIFL.

Congrats on another strong quarter for the India business. Now if we look at your India business, then again, we have seen very strong growth in second quarter. And last quarter, we had indicated that Rantac and Metrogyl had seen very strong demand because of momentum in acute and gastro products. So has the demand on Rantac and Metrogyl sustained into this quarter as well? And how has the traction been with respect to some of our cardiac products?

Rahul, thank you for this question. This is Nikhil Chopra. In continuing to the commentary that I had given in Q1, the momentum continues for Rantac and Metrogyl, which is a good sign that has helped us to deliver 30-plus -- adjusted 30-plus percent growth for quarter 2. And equally, our antihypertensive range of products, which is a combination of Cilacar, Cilacar T, Nicardia also continued to deliver market beating performance and gain market share and are also gaining ranks. In addition to that, also and what I was talking in my opening commentary, the adjacent progressive categories that we have got into, which is in the world of metabolics, which is in the world of diuretics, which is in the world of lung care, is also overall helping us in fueling the growth for India business. And that is in line with the entire belief that we have that our new product engine has also started contribution -- has also started contributing and it is gaining good traction of prescriptions from the health care professionals and our people are going and meeting those doctors.

Sure, sir. And a follow-up to that. So you refer to the fact that our India business is now tracking at INR 1 billion kind of monthly sales. So is that number largely sustainable? Or do you think that some part of the gains, which we have seen in acute therapy products would normalize going forward?

Generally, Rahul, the way IPM market behaves in terms of what benefit we got from our acute business, and when you look at second part of the year, and rightly we have positioned ourself in terms of getting new launches, particularly in the world of chronic play which I just spoke to you in the world of metabolics, in the world of diuretics, in the world of respiratory, in the world of allergy. So that is what we are trying to do in terms of maintaining the overall seasonality for first half of the year where you get the benefit of an acute portfolio. Equally, sustained growth in terms of our existing chronic portfolio and new launches will help us to sustain our INR 1 billion revenue for India business.

Sure, sir. And with respect to these new launches, so you referred to the fact that new launches account for 4% of India sales in first half. So is this based on internal number or this is IQVIA reported number?

This is internal.

Okay. So -- and can you elaborate on how the traction has been in some of these newer therapies like respiratory, pediatrics and nephrology for us?

Just to give you some examples that we were 63rd company to get into the world of dapagliflozin and dapagliflozin plus metformin combo. Today, we are 16th in rank, and we aim to be in top 10 in this category of business. Equally, very good response from the new launches that we have got in the world of diuretics. And there are a couple of products, which are gaining good traction in prescriptions from the health care professional personally, majorly M.D. Medicine and respiratory specialist in the world of lung fibrosis, in the world of anti-allergic combinations, in the world of mucolytic agents. So these all are the categories which are more chronic in nature. And out of 15 products that Rahul we have launched -- and last time also I'd indicated that in 12 to 18 months -- 18 to 24 months, our game plan is how do we at least generate a revenue of around close to $2 million -- close to INR 12 crores to INR 15 crores for at least 5 of these products, which overall talks about the spend of the field on the ground, which has never been in J.B. Chemicals. So that is what we intend to do. And equally, our existing 5 products, the way we are trying to build a ecosystem, and patient-centric initiatives, looking at how we can drive better adherence, closely working with health care professionals in the world of cardiology, nephrology, diabetology, how our existing firebrands also continue to grow and deliver market beating performance.

Sure, sir. So last question before I join back the queue. With respect to this INR 14 crore of advisory expenses, which we have booked in the quarter. So can you elaborate on what were the key findings from this exercise? And how we have incorporated those findings into realigning the GTM strategy for our India business?

So Rahul, Kunal here this side. These expenses are largely attributed across 3 main areas. The first one being design and implementation of the new go-to-market model, which was a major part of the transformational initiative underway. The second piece was around really driving processes and implementation of these processes, very close monitoring review mechanisms on the ground with respect to our sales force effectiveness activity and implementation of apps such as Salesforce automation platform. And the third piece is largely around cost efficiency, which Lakshay also spoke around, which is going to be very, very critical in light of the current scenario. The first 2, of course, attributed to a major part of this nonrecurring onetime expense. And we can safely say based on the results which we are seeing on the domestic market front that these initiatives are kind of driving positive outcomes for us.

Sure, sir. And in terms of these initiatives being visible tangibly in our financials, so do you think that the entire benefit of this realignment strategy would play out in our numbers over the next 1-year period?

Definitely, Rahul. This is -- these initiatives are not implemented for a quarter. While the design and implementation is underway, the real proof of the pudding is based on success outcomes over our mid- and long-term strategy, right? And never was this -- these initiatives were rolled out with just a quarter in mind or just a half year in mind. So we have a very solid long-term chopped out plan for our India model, basis which the go-to-market realignment was done. And we are fairly confident that this model will sustain and continue over the next few years.

We'll move on to the next question. That is from the line of Sonal Gupta from L&T Mutual Fund.

Just on the ESOP charges, just a clarification. So for what period do we expect to incur this? I mean, for how many quarters?

So as far as the ESOP expense is concerned, this started from August this year, that's the investment scheme was approved by the Board and the shareholders. And this will continue. This is almost a 6-year sort of a scheme. And because of the way the accounting works, you get bulk of the cost actually in the first initial years, and then it starts tapering off. And just to sort of preempt the next question maybe, on this one, overall, I think we had also in the last call indicated that this fiscal year, we are expecting a cost of roughly about INR 60 crores to INR 63 crores. You've seen INR 13 crores come through this quarter, which was pretty much half quarter's cost actually. And you will see another INR 50 crores over the next 2 quarters.

Got it. So -- and I mean like, just to understand this, so next year also, we should see this in this ballpark or it will step up further on a full year basis?

2 years will be a little bit heavy. Because like I said, it's a upfront cost identification. You actually provide more in the first 1 to 2 years, you will see a tapering down happening from FY '24, significant tapering down.

Got it. And just on, again, the -- I mean, like on the India performance has clearly been very strong. So could you just talk about how has been the thing on the trade generic side? I mean what's been the sort of response there? And how much is it contributing for your revenues?

So Mr. Gupta, this is Nikhil Chopra here. Trade generics is a very insignificant part of the entire revenue that we are -- that we are operating it. We wanted to be a part of this play. So that is what, what I've shared earlier in my last commentary also, less than 5% of our prescription portfolio we have shifted to the entire trade generics. And we continue to leverage the entire benefit of JB's organization because our prescription products, which is Rantac, Metrogyl are household names, and they would be available at the nook and corner of the country, perhaps at all 800,000 pharmacies of the country. So that is what we thought in terms of why don't we get into the world of trade generics. And the way we want to -- the way we want to play in this world of trade generics is, in the coming time also, it will be -- it will hardly contribute single-digit to the overall revenue that we'll deliver for India business. And smartly, we want to play in terms of we don't want to dilute the margin front. That is what I can comment at this moment of time.

Got it, sir. And just -- I mean, like your previous comments, like in our previous conversation has been that the benefit of Rantac price increase would sort of come towards the end of Q3. So would that still be the case? So I mean, like we're not really seeing any benefit in this quarter from the price?

Marginal benefit we have seen, but you are absolutely right, maximum -- maturity of the benefit we're starting at the end of Q3.

Got it. And just -- I mean, like while you mentioned that the CMO business remains a bit subdued, but there's a good improvement on a quarter-on-quarter basis. So should we see this number as being sustainable or improving going forward?

See, what I was sharing in the commentary, Mr. Gupta, that the entire effort in the world of CMO business is to not only look at the existing portfolio, but venture into the progressive new age portfolio beyond cough and cold, which is in the world of ventilators, in the world of immunity, that is what we intend to do. And also we are happy to share that we already have -- we already have started cough products in the month of December to some given time, we have got one more big plant on the both and our revenues should start fetching in starting December. So the entire intent in the world of CMO is to look at how do we widen our offerings to the existing big players, whom we have been working closely and the relationship has been there for 2 decades. And equally add new market clients with that capability and the capacity that we have and what we are trying to build it by scaling up our entire effort in the world of research and development. Yes, Kunal.

Just to add to that, the only form an international market perspective, you see positive traction sequential basis. And also what we hear from our customers is that the liquidation and uptake at the pharmacy level for some of the segments which we are present in has started picking up. So we are very hopeful that if the trend continues, and we are not confronted with other uncertain challenges related to the pandemic then we should be able to sustain this while we gear ourselves for the medium and long term, as mentioned by Nikhil.

Sure. And just my last question would be on -- I mean, the R&D side, I mean, like I know it's going to be a gradual scale up, but just do you have any further thoughts there in terms of how you're looking at that piece and what sort of investment are you...

As we have always maintained, there's not going to be significant change if you really look at our R&D spend as a percentage of scale. We have certainly activated our projects and these new projects call for investments. Overall, if you really look at comparison of our R&D spend versus last year, there has been a 20% up -- close to 20% up spend. But we'll be very selective and always follow a stage-gate approach. And we don't see significant needle moving at least in the near term from R&D as a percentage of sales perspective.

[Operator Instructions] The next question is from the line of Rashmi Sancheti from InCred Capital.

In your earlier comments, you mentioned that in the lozenges space, we are diversifying now some cough and cold segment even immunity lozenges and ...

Sorry to interrupt, Ms. Sancheti. We are not able to hear you clearly. Can you use a handset mode while speaking?

Yes. 1 second. Is it better now?

Yes. Please continue.

Yes. So in your earlier comments, you mentioned that in the lozenges space, we are now moving from could and cold segment to immunity sort of lozenges. So how different this opportunity is in terms of competition, in terms of margins? And when are we fully entering into this space?

So we have already activated projects. And the good thing is that our clients on the international market, they have a similar view in terms of diversification with respect to lozenges as a dosage form in the immunity segment, right? It's a need of the hour. COVID has taught a lot of players like us and also our principal partners that segment such as immunity is the future and new dosage forms will become extremely, extremely relevant. In fact, there are new hybrid concepts such as immunity with sore throat, which is a combination of immunity plus cough and cold segment, which we are present in. And these concepts are seeing initial traction and uptake in various markets where we are present. We have discussed a lot of opportunities. There's a lot of interest. And certainly we believe there is a huge, huge opportunity for this space to be captured. It takes time. We also work with principal partners who are very kind of particular about quality aspects. There are approvals which go into it. The good part is that all these projects are underway and well accepted and recognized by our principal partners. Coming to the second point of what is going to be the margin profile, we really don't see very differentiated margin profiles with respect to these products as well. And we are not a company which follows a toll manufacturing model, right? For us, we are very clear that we want to work with selected clients and really look at quality reference standards, which suit the requirements of these principal partners. And the same is the case and the expectation of those players from our side.

Okay. And coming to again on international business, like you mentioned that we are seeing some logistical challenges, and that is actually impacting the growth. How do we see in second half, is it still going on in some geographies or we are going to see that those things will get resolved and we won't see any shipment delays and anything? If you can elaborate more on the international market from covering all the major geographies?

In the last commentary, if you -- as a reference point, what I -- Rashmi what I had shared that our industrial business because of the logistics issue is being continued and the headwinds now what we are facing in the world of RMPM last -- first quarter was flat, but we are happy to report that our quarter 2 adjusted growth for intentional business is close to 5% to 6%. But the good sign is that our order book is steady for quarter 3 and quarter 4. Markets like Russia have been rebounding. South Africa, as I shared in my commentary, has been doing fairly well. We have gained ranks. We are the fastest-growing company in top 15. The U.S. business is performing as per our expectation and some branded generic markets are expected still due to the entire lockdowns because of COVID. But what we feel that by quarter 4 starting, we should be there close to low double-digit growth. However, we are closely monitoring the entire situation regarding RMPM input cost and supply disruptions equally the freight cost. And wherever possible in our international markets, we are trying to pass on the cost to our partners, be it in the form of increase in the RMPM or be it the affiliate in cost. So that is where we stand, but we are closely monitoring the situation, and we hope that things improve. And overall, we come back to double digit growth, which is more profitable in our international markets.

Okay. And lastly, on gross margins, as you said that you're all trying to transfer the cost to the partners. Then this kind of gross margins which we did in first quarter and second quarter, which was also mainly benefited from the higher domestic business growth, like 65% gross margin. Do you think it is sustainable in the second half? Or do you think that this might get impacted due to the high API prices?

So let me pick that up. Yes, at this stage, the visibility we have, our endeavor is to maintain similar trajectory on gross margins. Like I said in my opening remarks that, yes, the headwinds on raw materials are going to sort of get stronger, but we are equally putting in place mitigation plans, which include price increases, which include some of the cost transformation work we are doing to offset that. But I would just caveat my comment with the understanding that this has changed as we stand today. Everyday, there is a new news. Someday it's paper, some day it's coal, some day it's gas, someday it's aluminum. So this is as per the visibility we have today. and we'll keep you posted as things develop.

The next question is from the line of Abhishek Sharma from Jefferies.

Am I audible?

Yes, Abhishek.

Okay. Sir, I just wanted to know, you said in your comments that Rantac and Metrogyl are household names. Just wanted to know how much of the sales for these 2 brands are coming through prescription versus people buying or self-prescribing? And the related question to that would be, are there -- do you foresee any threat of substitution in e-pharmacies given the fact that they have become so common and so commoditize?

See, Abhishek, in terms of -- when you look at the entire story, the way IPM has demonstrated growth over the last 1 year, the biggest contribution is coming from all the big brands across the companies. So we are also fortunate to be a part of that entire game in terms of -- we have 5 brands in top 300 and out of these 2 brands are Rantac and Metrogyl. And Rantac and Metrogyl are not 2 products, are not 2 brands. We have got -- for both Rantac and Metrogyl, we have about 20 SKUs. And the strategy that we follow is in terms of how do our people go and talk about progressive SKUs in both Rantac and Metrogyl in the clinic of health care professionals in metro and tier 1 part of the country. And equally, we closely work with the channel in terms of what you are talking about the entire disposal, which is happening at the pharmacy. So this is a strategy that we have been following and this is overall helping us to not only gain ranks, but also deliver market-beating performance. That is the vision. What was your second one?

Substitution.

Substitution.

Threat from e-pharmacies.

Yes. So that is what -- the second part of the question is in terms of how in the rural and Tier 2 part of the country, we have got with the entire new go-to-market model, which we have put in place. We have got a team, which has been there. They're -- 50% of efforts are to work with the channel and the distributors and the pharmacies of the country. So this overall, the strategy that we are following for our brands, which is a combination of progressive and legacy mix of SKUs, has been -- is helping us out to get the maximum benefit for these brands.

Yes. See, my question was more to do with the fact that how much of it is coming through prescribers versus the patients just -- because they are so familiar with the brand...

Abhishek, the fact remains that if you really look at the prescriptions, which are coming from these brands are far higher and that is well substantiated with the evidence that if you count J.B. from a prescription perspective, we are amongst the top 15 companies, while by sales perspective, we would be amongst the top 30. So large portion of our prescriptions and sales are happening because these are inherent prescribed brands with the HCP community. And the benefit of being in the branded generics market is, even when there is a repeat purchase, the customer and the patient has such strong affinity because he knows that he's been prescribed that particular brand from the doctor, that we would insist for that particular brand. So there are prescriptions for these brands. It's not that it's happening through trade push, which is much well substantiated by the number of prescriptions and the fact that just by scale of prescriptions, we would be amongst the top 15 companies.

And that holds true for these 2 brands also?

That holds true for us because of these 2 brands. It's essentially because of Rantac prescriptions that we command such high number of prescriptions in the overall market.

[Operator Instructions] The next question is from the line of Cyndrella Thomas Carvalho from Centrum Broking Limited.

Just wanted to understand, again, going on to the recent headwinds on the raw materials side. If we look at our top domestic franchise -- brand franchisees like Rantac, Metrogyl, Cilacar, how well we have the control in terms of the supply chain? And what is our sense in terms of any kind of disruptions? How well have we mitigated this risk in near term, could you throw some light on this.

No. With respect to our top 3 brands, we would say we have always been much more cautious in terms of maintaining material inventory right through the last 18 years as we kind of always -- while living through such uncertain times. And even as we look into the near future, we would -- we are reasonably sure of our supply security for these flagship brands. We have never really compromised on managing the inventory to ensure that there is reasonable supply in the market, and we are welcomed.

In terms...

Sorry to interuppt. Cyndrella, your voice is breaking up.

Is this any better?

Yes.

Hello?

Yes, please continue.

Yes. So in terms of the risk, any recent disruptions you have managed to which you could highlight to us?

Sorry, your voice -- it's not very audible. Could you repeat that?

I'm so sorry, I'll join back the queue. It's from bad network.

We move on to the next question that is from the line of Ankush Agarwal from Search Capital.

Just one quick question. So can you talk a little bit about your strategy to use value that you have accumulated? Like in the past, we had talked about acquiring brands, the Indian licensing, investment as an opportunity and M&A. So any progress on any of these initiatives?

So Ankush, it has been -- it has been a work in progress. We have been evaluating the assets. We are not in a hurry to just acquire asset. We are looking at with the brands or a company which we can acquire is more a beta synergistc to where we stand. And equally, we are looking at -- because the way we are poised, we are present in 3, 4 categories of business. So any new therapeutic segment also would be a big welcome. But still, it's work in progress. And as and when things materialize, we'll be more than happy to share.

All right. Just to follow-up with this. So a larger part of our M&A strategy just focus on the domestic business, and second about the international business?

Yes, absolutely right.

[Operator Instructions] The next question is from the line of Viraj from Securities Investment Management.

Congratulations for good set of numbers. I just had 2 questions. First is on a Rantac. Just for a understanding point of view, last year, we did close to INR 200 crores of sales from the brand. So the price increase of 50% is applicable on the whole brand, whole SKU, is it? Or just any perspective you can share on the part of the portfolio it was applicable or on the gains you would see? That is one.

No, it is applicable, [ Ankush ], on 3 SKUs. And that is what should happen by what we had commented earlier by end of this quarter, which, as and when happens, we'll be more than happy to share.

Okay. So that 3 SKUs, would that be a larger part of the overall portfolio or...

That is a fairly correct assumption. For a substantial part of the main Rantac formulation, those 3 SKUs cover a good part of the portfolio.

Okay. And would you be looking to reinvest that? Or we'll be kind of looking to retain that and -- just trying to understand what is approach once we start realizing the gain.

That -- sorry, sorry, can you repeat the question?

So would we be looking to reinvest part of that gain in terms of market investments...

So I think with respect to Rantac, in fact, we should -- it's kind of a very competitive market. As Nikhil has maintained earlier also, when the price increase really happened, the material cost was going up significantly. And for us, whatever healthy margin profile we enjoy will actually help us mitigate the escalated costs which we are kind of confronted with. So that's how we'll play this.

Understood. Second question is on the CMO, the customer, which we added. Any indication you can provide into the kind of annual business the customer does and where you're kind of heading? And when we say we've kind of...

Not at this stage. See, this is a gradual process. You lock in a large marquee client, you start giving them supplies for one market, pressure test back market. They get confidence and then other markets open up. So that's the process. It's too early for us to kind of comment on what are the volumes and the value which we will be kind of gauging from that. But the important point is, as we had always maintained, that our focus will be to add marquee customers. And despite the lockdown period, we have been able to lock in one, and that process will continue.

Okay. And sir, really question is, when we say, we have added offerings and wellness and immunity, so from an addressable market point of view, how does it change? Any perspective you can share?

Could you repeat the question, please?

Sir, when we said we have added offerings in wellness and immunity segment, what kind of addressable market it...

We are almost talking about expanding the market size by 2 to 3x. We don't really have any specific numbers on that. But most of our lozenges platform, a large percentage of that was specific to the cough and cold segment and sore throat. Now we are talking about immunity, which generally expands the overall market opportunity. So from a mid- to long-term perspective, if we are successful across these therapeutic segments, certainly, the market opportunity expands many fold.

We'll move on to the next question that is from the line of Sunil Kothari from Unique AMC.

Congratulations for a really wonderful cost measures and very, very good gross profit margin. Sir, my question is this benefit of very high or reasonably very respectable gross margin and your effort to improve productivity, reduce costs, all the measures we are taking. Will it percolate down to better EBITDA margin maybe from current to maybe respectable or further going ahead? Or you feel this is the sustainable margin?

So this is Nikhil Chopra. What I commented earlier in my commentary, as we are seeing the entire -- the environment in which we are operating, if you look at, it's a combination of headwinds and tailwinds that we are seeing in the business. And what we see is currently the run rate that we are up to in terms of top line, we are close to around INR 600 crores a quarter, which demonstrates strong operating performance, which overall will help us to deliver EBITDA margin in the same profile what we delivered last year. Parallelly, what we are also doing within this aspect is managing the headwinds which we are facing in the world of RMPM, in the world of input costs, in the world of shipping, logistic issues and equally investing in the business for future growth. So the way we are positioned is to deliver market bidding performance in our geographies where we are present, majorly India, South Africa and -- South Africa, Russia or home markets and also maintain a healthy EBITDA margin profile close to 26%, 27%, which we delivered last year and overall create value for our stakeholders.

Sure, sir. My question is related to maybe over the next 1- or 3-year period. Do you see any improvement in this range of EBITDA? Or we are very happy with this EBITDA, we would like to invest more and grow faster?

See anybody and everybody would be very happy to improve the EBITDA margin profile whether it is you or any company. But the way we are positioned, we are not looking at business from a today or tomorrow perspective, we are looking at business from a day after tomorrow perspective. So we fundamentally feel in terms of -- in terms of where we are today. And our entire concept is invest to grow, that is what we want to do. You have been -- you would have been hearing the entire commentary that I've been talking about what we have done in India business. We have launched products now to launch progressive portfolio in the world of international markets, getting product adjusted, investing in R&D, looking at how do we manage our CapEx, equally manage our employee costs, equally look at environment that we are operating. If we are able to deliver market beating performance and generate higher revenue and are able to maintain the same EBITDA margin profile, we are very poised to create value for our stakeholders.

True, sir. Perfect. And sir, second question is, we are really generating good cash flow. We have already a good bank balance also. So what is thought process on this? By what time should we expect some respectable acquisition or spending of this bank balance? Or you would like to distribute those to investor? Any thought process on this from a medium-term point of view?

So let me answer the first question, and then I will invite Lakshay to talk about distribution, what you are asking. First of all, definitely, we're looking at getting into the world of inorganic opportunity, which is definitely on the cards, we are evaluating. Here, you don't have choices, by the way. There are assets which are available, which are under evaluation. It takes time. And we are not an organization which are in a hurry to just acquire an asset and look at. We are more looking at, at least to get the right asset at the right value, which is more suited to the way we operate. And this effort will be majorly dedicated for our domestic formulation, but also equally for our ROW markets for South Africa, if there are opportunities available to buy out through this, we'll not be shying away. That is where we stand from the entire world of acquisitions as and when it comes. Over to Lakshay in terms of...

Yes. So on your point on distribution, I think, again, it sort of links back to the first point you raised. I think M&A is a bit of a binary sort of event. And depending on the scale of M&A that comes through, obviously, there are implications and how much and when we can distribute dividend. But leaving that aside for a moment and generally talking about what our plans are. Our idea is to maintain a certain consistency on our dividend policy and basically reward our shareholders on a consistent basis every year. And like I said, this is only obviously subject to any calamities or significant M&A transaction, which is of a certain magnitude, in which case, we will come back and disclose to all of you what sort of dividend policy we are pursuing.

Right. And sir, last question is, up to now, we have totally granted options worth -- not worth -- total INR 28 lakhs options have been granted, INR 26 lakhs up to this quarter and then another INR 2 lakhs. So who is the major 2, 3 people or 2, 3 major employees who got this benefit of these options? Or if you can share the number of options that has been granted?

So I think overall, at this stage, we would restrict ourselves to the disclosures we've made in the financial statements. I think it will not be fair for me to sort of call out individual names on the call.

We'll move on to the next question that is from the line of Prakash from Axis Capital.

Am I audible?

Yes, Prakash.

Yes. On the margins perspective, I heard about 26%, 27%, we are continuing with that kind of margin guidance. Just wanted to understand, have we factored in enough what we're hearing of late in terms of cost pressures, especially on our [ NIM ] side, solvent, power, et cetera. So I understand, you have large domestic, which will help us relatively better offset on the cost side. But have you factored in enough cost escalation on that side?

So Prakash, as we stand today and the way we see next 3 to 6 months, next 2 quarters, and some of the tailwinds that we see in the business, which will help us to mitigate the cost pressures, we definitely see the EBITDA margin in the range of 26% to 27%. And what you also -- when you were asking the question, the positive side of the entire performance is what we are able to deliver in our India business, which has both high gross margins, which is helping us to maintain this EBITDA margin profile overall for the company. And what was not happening in this company is the new launches, which are more progressive in nature are also -- will also help us to fuel the growth. So we are not only depending upon our 5 top brands. Eventually, you will see some quarters from here. New launches will also start contributing not only in the top line but also in the bottom line. So India business obviously will help us and some of the price increases that we have got are the tailwinds and some of the developmental work that we are trying to put in place and filings that we're trying to do in the world of ROW and at some given time in U.S., that is where we see in terms of same profile of EBITDA margin, we'll be able to maintain.

Okay. And just to clarify, this excludes the onetime ESOP cost, which will be a recurring event every quarter, right?

Yes. The ESOP cost is recurring, but it is noncash in nature, really, I mean it's more accounting at this stage for...

Yes. Yes. Understand that, but it will be every quarter phenomena, maybe at a declining pace?

Yes.

Yes.

And this go-to-market onetime cost is actually one time or that also there could be recurring impact?

The go-to-market is one time. There is no real recurring impact. A very small portion of it, as Lakshay mentioned earlier, to drive cost efficiencies, but a substantial part of that go-to-market is onetime.

Okay. Perfect. And the second question is actually on the growth side of things. So we have done a phenomenal job during the quarter. But I mean if you look at the AIOCD number coming for October, that was pretty soft both for the market and for J.B. also. So would you relate to that number? Or would you say that not captured in well as it is also confirmed by many companies?

So if you look at yesterday, the IMS, IQVIA number has come, Prakash.

Sir, I don't have access, if you could highlight?

10% growth of market. J. B. Chemicals is growing. It's the fastest-growing company, 27% growth. We have climbed 2 ranks also.

Okay. This is October data?

October data. Yesterday, only it has come.

And you would relate that this is more, I mean, acceptable number by you? I mean...

See, Prakash, just to share with you, we don't look at on data. We don't look at AIOCD. We don't look at IMS in isolation. There are some fundamental levers that we have put in place in terms of what primary revenue we are generating, the secondary uptick which we monitor across the country, the efforts that our teams have been putting and talking about our products in the clinic of doctor, overall contribution coming from new products. And overall, if you look at the inventory that we have in the market is less than 30 days, itself tells about that -- and what IMS has been consistently reporting in terms of what we refer to the data and that has been the story in terms of we have been delivering growth, which is beating market performance by a significant difference without any contribution coming from the COVID portfolio. So that is where we stand. Equally, what we also monitor for our overall performance is the entire prescription data, which comes from IMS and equally [ XML chargesheet]. So these are 5, 7 levers we monitor for a INR 1 billion revenue that we generate every month.

Okay. And lastly, on the MR productivity, where we are? And I mean, given the expansion, et cetera, do we plan to add more MRs? Sorry, I missed if that is already discussed.

No. That is what I had also earlier also commented. The entire new go-to-market strategy is fundamentally based on how do we enhance our capability in the offices of health care professionals, drive better productivity. Our productivity was close to 4.5 lakh. Today, We are at 5.2 lakh per person -- 5.2 lakh productivity per person. And with the new launches, and the big brands that we have, we look at -- we see forward this productivity to handsomely grow at around 12% to 14%. And in next 12 to 18 months, there is no plan to add any manpower on MR.

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

Yes. My question pertains to Russia. By when do you see Russia getting back to where it was earlier?

So the Russian market was heavily hit. But the recent trends and on a sequential basis, when we look at the secondary offtake of our business, we are really seeing positive momentum building. In the last 2, 3 months, give us a good positive visibility that H2 will be much, much better than H1. And it's not only reflective of our current position, but also of the overall pharma market situation in Russia.

Okay. And in terms of a weak cold and cough season, do you see any impact on an annual basis?

We believe that possibly the worst is over for markets like Russia and some of our branded generics market for our other cough and cold portfolio. If things continue the way they are and as markets gradually open up, even this segment will see a revival overall. So as we have maintained the feedback which we are getting from our distributors, not only in our home markets like Russia but also in some of the other BGx markets, we certainly see revival happening in terms of uptake of these products. But we have to be mindful and watchful.

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for the closing comments.

So first of all, thank you all for participating in the conference call for our quarter 2 results. And as earlier, what we have commented in our initial remarks and based on the questions that we could answer is we are on our trajectory in terms of delivering around close to INR 600 crores quarterly revenue. And the guidance that we give at this moment of time is to maintain the same healthy EBITDA margin profile close to 26%, 27% for the year. That guidance continues to be there. And there are a good number of tailwinds, which we see in the business, majorly our India business continues to deliver close to INR 1 billion with high gross margin, high EBITDA profits. Equally, the entire thesis of our -- out entire blueprint that we have put into picture is to invest to grow, which will more happen in the international markets, which will help us to serve more and more number of patients globally. And with the entire opportunity that we have in hand in the world of CMO business, we are trying to look at how do we widen our offering closely work with our marquee players, add on new marquee big multinational players in terms of what capability and capacity we have in the world of CMO business and look at what -- how we can create the value for our stakeholders and serve more and more number of patients across the globe from the quality medicines that we offer from J.B. Chemicals & Pharmaceutical is the house that is where we stand. Thank you all once again, and wishing you all good health, and I hope you and your families are well in this entire -- are doing well in this entire -- endemic of this pandemic and are scheduled to take your second dose of vaccination. And at some given time, we'll be more than happy to engage with you physically, that is what we intend to do. Thank you once again for participating in the conference call.

Thank you. Ladies and gentlemen, on behalf of J.B. Chemicals & Pharmaceuticals Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.