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

Ladies and gentlemen, good day, and welcome to J. B. Chemicals and Pharmaceuticals Limited Investor Conference Call as of 27 Jan 2022. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jason D'Souza from J. B. Chemicals. Thank you, and over to you, sir.

Thank you, Stephen. Good afternoon, everyone, and thank you for joining us on this call organized by J. B. Chemicals & Pharmaceuticals Limited to discuss the acquisition of the brands and related assets from Sanzyme Private Limited. We have with us on the call today Mr. Nikhil Chopra, Chief Executive Officer and Whole-time Director; Mr. Kunal Khanna, President, Operations; and Mr. Lakshay Kataria, Chief Financial Officer. 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 in the transaction-related documents uploaded to the stock exchange website earlier. I would also like to highlight that as this call is organized for the specific purpose of discussing the Sanzyme transaction, you are all requested to limit all discussions to the current announcement. With that, I would like to invite Mr. Nikhil Chopra to begin the proceedings of the call. Over to you, sir.

Thank you. Thank you, Jason, and good afternoon to everyone. A warm welcome, and thank you for taking time to join us for this discussion on the acquisition of the brands and the related assets of Sanzyme Private Limited. I trust you would have had a chance to look at the related document that has been uploaded on the stock exchange website. Now I will briefly summarize the main highlights of the transaction. We have acquired Sanzyme's key brands portfolio and related assets across probiotics, therapeutic nutraceuticals and reproductive health markets for a consideration of about INR 628 crores. This excludes related taxes, stamp duty. In addition, we expect to invest around INR 15 crores separately as a working capital for the acquired business. The transaction funded -- this transaction is funded through a mix of internal accruals and a short-term debt. It's expected to be completed over the next 2 weeks, subject to customary closing formalities. The brands acquired are for Indian markets only. And some of you may be aware that Sanzyme is a leading player in the probiotic and hormone segments. Its flagship brand, Sporlac, launched in 1973, is one of the leading probiotic brands in the country. Lobun is another multi-strain probiotic blend used to delay progression of chronic kidney disease and is one of the trusted formulations for leading nephrologists across the country. Sanzyme has also developed prominent brands in the reproductive health segment. Overall, these brands have combined revenue of around INR 160 crores as per IQVIA MAT December 2021 data. The acquisition expands the addressable opportunity of JBCPL by almost INR 6,000 crores across the segments. Further, we will now be among the top 5 players in the probiotic category, which is growing at around 12% to 14% annually. Within the country, gastrointestinal therapy market, probiotics has been 1 of the fastest-growing segment and has delivered growth of almost 35% as per IQVIA MAT 2021 data. The top 10 players, including Sanzyme, account for 65% of the market. Sanzyme itself has a market share of 7.4%. Key drivers of the growth in probiotics have been well recognized health benefits, possibility of expanding usage indications and superior safety profile of the products when used with other medications. Sanzyme's range covers both the mass probiotic market through Sporlac as well as specialty products like Lobun and Oxalo that addresses the unmet demand in the niche kidney care segment. This is in line with our stated strategy for playing to our sales in the nephrology segment. Coming to the reproductive health segment, the other significant area targeted by Sanzyme's range of products, is also slated for a rapid growth over few years based on a rising incidence of infertility cases in India. Products acquired by us address both gynecological and sexological segment. Sanzyme's existing distribution network, over 100,000 health care professionals, number of hospitals and more than 300,000 pharmacy cover general physicians, consulting physicians, pediatricians, nephrologists, urologists, gynecologists and IVF centers. Currently, Sanzyme's brands have major revenue contribution from southern and the north part of the country. Now we will have multiple levers available to accelerate the next phase of growth with the combined entity of Sanzyme and JBCPL. There will be an opportunity for life cycle management of current portfolio, leveraging the existing brand equity as well as the similar profile of prescriber base. Synergy in therapeutic areas such as gastroenterology, nephrology and potential to develop OTX visibility across prescription, and probably in the coming time, OTC markets. The acquired brands derive a large part of their business from certain parts of the country. There will remain a potential for aggressive expansion, particularly in eastern part of the country, metro market and part of South India. We will be -- we will also be expanding coverage at generalists and pediatrician, introduce progressive SKUs, develop evidence generation and therapy shaping initiatives, as we have been doing in JBCPL for last now 15 months, particularly in the nephro therapies and expand our portfolio and reaching mother and child segment. Going forward, our India business contribution is expected to exceed 50% of overall revenues. Driven by the planned initiative, we expect to accelerate top end performance and ensure business profitability. Post this acquisition, JBCPL's IPM ranking will further move up by 2 points. Today, we are 26, 27th ranked company -- 27th ranked company, we will be 25, 26 ranked company. We are now even more excited about the future possibilities as we supplement our growth ambition in India and enhance value for all our stakeholders. On that note, I conclude my opening comments. 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 on the announced transaction. Thank you all for patient hearing.

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

Congratulations on the deal. If you can please talk about how the deal process was run, whether it was a bilateral process between you and the seller. And what was your reason for zeroing in on the probiotics and the reproductive health products, given that the market for these products in India is still relatively small and niche?

So good afternoon. I'll take on the first part, and then I'll request my colleague Kunal to talk about the overall probiotics space and why we are sort of excited and -- about the overall probiotic space. So as far as the deal process is concerned, you're right, this was a bilateral process. Over the last couple of weeks, we've gone through extensive due diligence exercise, right? And post that, we have sort of made an offer to the sellers and concluded the deal. So I hope that answers your question.

Yes. So it was a bilateral deal. So any metric which you can provide in terms of how you evaluated the purchase price for the deal?

So we looked at a couple of considerations. One, there is always a market construct to such deal. So we've looked at relative valuation metrics, which are prevalent in the current market scenario. Also, I think the whole financial evaluation in terms of what the assets bring to our P&L, both from a top line and a bottom line perspective is what we've taken into consideration. And we've also gone through a professional valuation sort of process to value these assets.

And Rahul, to your question on why probiotic and infertility that we have taken over, so probiotic market is a very attractive market in India. And particularly at JBCPL, when we talk about our brands like [ nutraceuticals ], there's a lot of synergy in terms of [ all ] prescription, which we can build on. And overall, market has been also growing at a pace of around 12% to 14%. And when we see the range of products that we have acquired, we see a lot of opportunity in terms of geography where we can penetrate better as compared to the way Sanzyme was operating. And equally, a lot of life cycle management that we can do with the existing portfolio, which will overall help us to build on this portfolio.

Sure, sir. And now in terms of how this portfolio has grown over the past 3-year period. So if you can talk about that? And how many reps would we need to add to market this portfolio in India going ahead?

Kunal, you would like to take this question?

Sure. Yes. So I think when we primarily look at the probiotic portfolio and the historic growth rates over the past 4 years, the brand has almost grown at 11%. In addition to that, there are specialized probiotic brands in this business, which Nikhil alluded to, the likes of Lobun, where the historic growth rate has been 50% and plus, and these are extremely, extremely progressive categories. The unique advantage of this probiotics portfolio which we are talking about is that it's trading across the mass segment, which is very core to the business model and go-to-market model of J.B., essentially the CPGP prescriber category through the Sporlac franchise, where the cost of therapy, or the cost of therapy can range anywhere between INR 18 to INR 24. And it also allows us to capitalize on the Specialty segment under the nephrology therapy base, which again is very core to J.B.'s overall business model and allows us to look at specialized products in chronic kidney functions. There, the cost of therapy can be as high as INR 160 to INR 240 for the therapy. So we are getting access to a wide range of probiotic segments through this portfolio. More importantly, in line with our core strength, are prescriber focused CPGP pediatrics as well as nephrologist. That is very core to us as we look at this play. In term of [indiscernible], what kind of sales and marketing engine will be required, essentially, we'll be close to 350 people, sales and marketing people who will be transitioned into JBCPL. And as a result, it will be a fully integrated business just like any other division in J. B. And these 350 will spread across 3 business units.

Sure, sir. And sir, last question from my end before I join back the queue. In terms of EBITDA margins, your presentation states that this portfolio is generating north of 35% EBITDA margins. But given the synergies, which you can derive in the portfolio because you are already participating in the gastro and the nephro segment, do you think that you have an opportunity to improve your EBITDA margins for the acquired portfolio further over the next 3-year period?

Let me take that one. I think our first start really would be to look at accelerating the growth like Nikhil alluded to and basically really building synergies from a go-to-market perspective, right? So our first focus really will be actually to put more investment behind the plans, scale up in new geographies. Over a period of time, like any other business, obviously, our endeavor would be to expand margins but not in the near short-term.

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

My first question is as a part of the transaction, are we going to add any manufacturing facilities? And my second question is will this acquisition create any goodwill on our book?

So let me take those 2 questions. We are not intending to add any manufacturing assets as a part of this acquisition. And to your second question no, there is no goodwill getting created in the books. The consideration is primarily towards the banks.

Okay. That's helpful. And would we incur any additional costs in terms of increasing brand promotion for the acquired portfolio?

Yes, like I just responded a minute ago, we will look at scaling up given the investment in these brands in the next 1 or 2 years to accelerate the top line growth. But over a period of time, I think our endeavor as the management team is to accelerate the overall EBITDA margins.

The next question is from the line of Abdulkader Puranwala from Elara Capital.

Sir, I just wanted to understand, are any of these brands that you've acquired under price control?

No, negligible part in -- under price control.

Okay. None of them. And sir, second part of my query was if I look at the sales breakup, that is of the INR 160 crores, the large part is, again, just concentrated towards the 2 brands. So any specific reason why we have acquired apart from the probiotic, we have ventured into the reproductive health as well? And what could be the market size in these 4 to 5 brands on the reproductive health side? And accordingly, what is the opportunity we'll try to have over here?

So let me start and then Kunal can come in. First of all, Sporlac being added to the family of J. B. -- today at J. B., we have 5 brands in top 300. And for a brand to be in top 300 as reported by IPM, the threshold has to be $10 million. So it gives us an opportunity in terms of what we spoke earlier by doing the right life cycle management of the portfolio, looking at how we can exploit the entire geographical footprint and a lot of synergies that we can grow. We are looking at that this will be the sixth brand in the coming time in top 300, which will be a part of J. B. family. So that is what Sporlac brings on the table. On the infertility part, Kunal, would you like to come in?

Yes. When we look at this overall opportunity across probiotic, reproductive health and therapeutic nutraceuticals, we are almost talking about increasing our addressable opportunity by INR 5,000 crores to INR 6,000 crores. Probiotic forms a significant portion of that and so does reproductive health. The top 5 brands which are coming as part of this computation are, of course, Sporlac and Lobun, progressive categories on the probiotic space. But even the other brands on the IVF side, which again the huge addressable opportunity like Gynogen and Pubergen, are all plus INR 15 crore brand and among the top 5 brands in their respective categories. We already have some level of equity with the gynecology segment, and we would want to build on that with the portfolio which we are getting in. And the focus continues to be further invest and build on the probiotic space.

Sure, sir. Understood. And just 1 question, if I may. Sir, in your opening remarks, Nikhil sir mentioned that these brands are only or India-specific. So is there any contractual agreement which would bind us from not launching this brand in the international market as well?

So let me take this question. The use of trademark is restricted to India only. So all the brand names will be used for the Indian market.

The next question is from the line of Anubhav Aggarwal from Credit Suisse.

One question on Sporlac in particular. So when I look at the usage of the drug by the patient, am I right in assuming that this will be used largely for a short-term purpose, that is, mainly used for, let's say, 4, 5 days by a patient and then discontinued. So Lobun may be different, but just wanted to check this assumption.

Yes. It is a week to 10 days, along with the course of antibiotic.

Today, it's a INR 60 crore brand. How big you think let's say, all goes well, you grow it, et cetera, because [ not that chronic, well ], how big you think this brand can be?

See, we will not like to get into any specific figures that how big we want to -- but currently, as we shared earlier, this brand is growing at around 10% to 11% and the market is growing at around 12% to 14%. So with the right strategies in place and the synergies that we want to build in, this brand coming to J. B. house, we are looking at how do we in short to midterm, start delivering market building performance. And as I shared earlier, we would like this brand to be in top 300. That is what we can say at this moment of time.

In terms of indications, could diarrhea be most important indication this product is used? What are the other indications which are a large part in terms of its core contribution?

Yes, Kunal.

So diarrhea continues to be an important part of the prescribed indication. It's also to an extent used in IBS, and diarrhea and antibiotic-associated diarrhea is 1 of the major indications in which this brand is prescribed. The larger point remains that we are talking about a category which is still at a very, very nascent stage. [ And hearing, ] we have a category leader. Our endeavor will be, as Nikhil mentioned earlier, to drive efforts in terms of therapy shaping. And if we are able to expand the category with a brand, which is a leader in this segment, we are fairly confident of building on this platform.

How big is the product market today, which, let's say, [ INR 40 to INR 60 crores ] if you look at the other products put together? [indiscernible]

The overall addressable opportunity is in the range of INR 1,800 crores to INR 2,000 crores.

That's as of today. That's the market?

Yes, that's the market today overall [indiscernible].

And so out of the INR 1,800 crores market, those with the largest use are for diarrhea and IBS?

I would not really say that all of that is used on diarrhea and IBS. I think the core part out here is it helps in improving the gut. There are many gastro disorders which lead to some kind of degeneration of flora in the gut. During diarrhea, it's something which is quite evident and patients want to use it. But we don't really want to get into the science of it right now. I think what we can share is the category leaders play a very, very important role in the regeneration of the gut during different indications and diarrhea tends to be a major part of that. Having said that, a combination of those strains are used in -- are being used in many other disorders like [indiscernible] products, for example. Lobun is a combination made of 3 to 4 different streams. Part of it is also the flora gut stream, but it's used for a very different indication where the major function is absorption of toxins. So a wide variety of indications are there for probiotics to go up on.

Sure. And just one question. So in terms of synergies, Metrogyl will be the closest product in your portfolio. If it -- today, are probiotics largely co-prescribed, let's say, [ gastroenterologists ] are writing Metrogyl, let's say, for some indications -- have you seen that?

So the way you have to see this is there are many issues on the gastro side. There could be stand-alone IBS-related issues, diarrhea issues, and then there are antibiotic-induced diarrhea,, right? So that's what Nikhil was alluding to. Given that with antibiotic prescription there tends to be a tendency of diarrhea being induced, that tends to be a prescription, co-prescription behavior, which is adopted by doctors. But that does not mean that is the only indication. But there's a lot of synergy and benefits which can be derived from that. The important thing is Sporlac is better absorbed than Metronidazole, and we would certainly see a great opportunity to have discovered a co-prescription pattern. [indiscernible] the co-prescription behavior, it allows us to appeal to our strengths of go-to-market business model.

And I have one last question on Lobun. This seems to be more of a -- could be like a chronic usage. But given the size and the time it has been in the market, it doesn't seem to have taken off so far. So I don't know whether that is due to the product or that's due to the lack of distribution strength, but you have mentioned it -- the brand has a good distribution center. I couldn't understand why Lobun has not taken off -- why is it only INR 20 crores kind of drug even now?

The important part is we look at the progression over the last 4 years. Being a specialized first in its class category takes some time for it being adopted and prescribed by the prescriber community. What tends to happen is when a product or a molecule is new and unique in its category, prescribers take their own time in assessing the real-world evidence patterns and how the efficacy of the drug is. And clearly, you see the progression over the last 4 years, all the nephrologists have given this a thumbs up. We still believe there is a lot of opportunity because as we look at the prescribing pattern, and the converted prescriber base for Lobun, only 35% to 40% of the nephrologists are still prescribing this. Like Nikhil mentioned, our endeavor will be to build on the scientific evidence, further support it with more clinical data and expand its usage in the CKD front.

Just some clarity for CKD, how long is typically the drug prescribed to patients?

The point out here is that it can be given Stage 2, Stage 3, given it helps in better absorption of toxins, it really depends on the patient profile and how -- what kind of clinical symptoms does the doctor see. It's not so easy to say that as is the case in [indiscernible] that you prescribe it for [ 40 to 60. ] It's difficult to put a number there. For Stage 3, where the toxicity could be high, the actual therapy duration could be much higher. So it just depends on the clinical profile. But it is meant for chronic usage.

The next question is from the line of Nikhil Mathur from HDFC Mutual Fund.

In fact, I think Aggarwal has asked most of the questions that I was intending to. But let us slip in 2 more incremental to try and build on his questions. I mean, you mentioned that like Sporlac is prescribed for 4, 5 days. It's an antibiotic-led issues in the gut because of what -- it is prescribed. Can it possibly cannibalize some of your key products? Because I believe that some of your products are also part of that indication or curative therapy or that indication. So is there a chance of it -- of cannibalizing it?

We -- let me take this. We have negligible presence in the world of probiotic. And by the way, when you talk about Sporlac, basically, the way I see this product is response. We are really positioning it in terms of healthification of the gut. So basically antibiotic-induced diarrhea, week to 10 days. Kunal has been speaking about irritable bowel syndrome. It can be prescribed for long term. And equally, we are looking at better life cycle management of this brand, where 30%, 40% of the revenue for the probiotic market comes from liquid formulations, which at some given time you will see us introducing. So it has got a variety of usage from different specialties. And it is not only antibiotic-induced diarrhea, area, but basically positioning it as a probiotic which will be responsible for healthification of the gut.

Okay. Okay. And sorry, I haven't got a chance to check. What are the price points at which Sporlac or other probiotic clients of this company are selling at?

I'll take this. So Sporlac has always been a trusted brand which shows a very high level of efficacy at a very, very affordable price. The cost per tablet is in the range of INR 6, even if it's QID or BID, the overall cost of therapy comes to around almost to INR 18 to INR 24 per day. As opposed to some of the other strains, which are there in the market, where a BID, those can go up to almost INR 84. And that's because Sporlac has a very, very unique advantage, to be able to drive the same level of efficacy at a very reasonable price. The other thing which one has to be very -- because when you really look at the probiotics business, what we are really talking about is the strain. And we have a lot of confidence in the strain, which is Lactobacillus. Point number one, it's the most used and trusted one with a lot of real-world evidence data. And most of the research has happened in probiotics with respect to the strain. In fact, doctors see this that as far as efficacy goes, possibly this has the maximum real-world evidence data on Indian population. And the other important part with respect to this strain is and why it helps to kind of manage the price also is that the stability of this strain is better controlled across varying temperature. So that helps in freezer distribution. You don't necessarily need an active culture infrastructure. And because of the stability, it has marked adoption even amongst the CPGP subscriber base.

Okay. Okay. And the way we are seeing that there is an intent by companies to consumerize some of the brands focused on wellness. So is there an opportunity that -- I mean the product like a Sporlac can be consumerized or some clicks be made so that it is out of the scheduled category and be part of the OTC franchise? Can that be done? Or can other companies launch such kind of products with incremental innovation, not like a Sporlac, but a bit more targeting the same area in a more wellness kind of construct?

We want to play on the prescription side. It's essentially our drug, and we want to play on the prescription side. Over -- over the near and midterm as we look at life cycle management opportunities and see what the potential is, we will try to define different pathways for possibly different variants. But the prescription, the efficacy, the fact that it's adopted by a large set of prescribers gives it strength, and the strength of the brands across the probiotic range which we have taken, and we want to continue to build on that. But as an important point, as Nikhil said, it's therapy shaping. Over a period of time, as we look at some life cycle management opportunities, there could be some brands which will take more shape in the form of OTX-OTC play, but it's too early to comment on that.

[Operator Instructions] Next question is from the line of Karan Surana from Monarch AiF.

Thank you for the opportunity and congratulations on the acquisition. So sir, I just had 1 question since my other questions have been answered. What is the likely next 12-month projection given the MAT value for us was INR 160 crores, but FY '22 revenues is just like around INR 135 crores. So any color on that would be really helpful.

So Karan, the way we are looking at as we have got to set in, it will need some short to midterm transition, but with the entire agenda of agile execution that we bring on the table from the house of JBCPL, we are looking at that -- by the end of the year, we should look at delivering market-leading performance. And what I stated earlier that the biggest franchise that we have got in the form of Sporlac, which is mass probiotic and equally specialized probiotic which is Oxalo and Lobun. These are the products which should see better distribution and availability and equally, the focus that we will bring on the table when we start looking at the synergies that we want to build from the house of J. B. So what we have kept is the aspiration that with no transition in place, as we are working on, we are looking at how do we, by the end of the year, start delivering market-beating performance in this category of products.

Okay, sir. So like there's no specific numbers that you're targeting, just maybe meeting the market as a guide -- that would be a guidance, right?

Yes. Yes.

[Operator Instructions] The next question is a follow-up from the line of Rahul Jeewani from IIFL.

So in terms of funding the deal, you have stated that it will be equally funded through internal cash accruals and short-term debt. Any reason for funding it through short-term debt as well given that our cash balance on books is more than the purchase price which we need to pay for the deal?

Yes. Rahul, let me take that. So I think what we intend to say is, one, that is not an equal funding between debt and internal accruals. The deal will be largely funded through internal accruals. We may need to rely on some short-term debt because apart from the purchase consideration, we also need to pay a certain GST and stamp duty. So that will take away most of the cash that we have on the books. And hence, for some of our working capital requirements, we may need to sort of dip into some short-term borrowings, which are going to be for a very short tenure, right? I hope that helps.

Okay. And the debt rate for the short-term borrowings will be in the range of 7% to 8%?

I wouldn't want to give a specific guidance of interest. It's a bit of an evolving scenario. But given the size of the debt we're talking about, it's a matter of few months, right? So don't get too worried about what's the rate of...

Sure, sir. And in terms of the purchase price, if you can allocate it between intangibles and -- because you said you would not be having any goodwill related to this. So how would the purchase price be allocated? And what kind of an amortization impact you are looking at from the amortization of the intangibles?

So overall, like I mentioned earlier, a bulk of the consideration is going towards the brands, right, which is the intangible we have got. And this, from an overall sort of amortization perspective will mean our amortization rate of about INR 25 crores, INR 26 crores a year, right? This will be a long-term amortization given we are buying brands.

Okay. So does that mean you are factoring in a 20-year amortization period?

Yes, most of that, sir.

The next question is a follow-up from the line of Anubhav Aggarwal from Credit Suisse.

I have 3 follow-ups. One, you mentioned that for Sporlac last 4 years, the average was at 11%. I just wanted to get [ trusted ] and that -- how much is the volume growth of this product roughly there?

Kunal, you would like to take this?

Yes. So when you look at the volume growth versus time -- pre-COVID, because that's the right way to look at things -- the volume was close to 5%, and the other part was at [ 3.50 average ] growth.

The reason I ask that question is because -- in this category, it makes so much sense, given the benefits of taking Sporlac or any other probiotic or Lactobacillus spore barrier, I'm a little surprised why this segment hasn't taken off so far. I mean to say this segment should have been much larger. I'm just trying to understand that -- for example, Sporlac, I don't know whether it was company-specific problem in promoting the brand? Or was it a category problem that volume growth was [ slow ]?

So we do believe that the brand was under invested and under leveraged. When we look at the actual growth of Sporlac close to 11% versus market growth of 30% and some category leaders, others being in that range, there is certainly a very good potential and opportunity for us to invest more. There are some brands, potentially some divisions where the market is not really empowered and possibly the ability of other organizations to drive these synergies across other segments like what we are talking, what we'll be able to do with Sporlac, did exist. So certainly, we believe we have a huge, huge opportunity to further drive our volume growth given that traditionally, it was potentially under-leveraged and under-invested. And there are different reasons, which really drives the confidence for us. Clearly, what we have mentioned is life cycle management. Nikhil alluded to the fact, if you really look at the probiotics business, the largest growing category is liquids. And Sporlac currently has no real liquid [indiscernible]. That, to an extent, explains the difference. We have a huge opportunity with some combination of strains also. From a long-term perspective, it could be an [indiscernible] combination of our certain existing product category. We have already spoken about synergies without this kind of base, where we want to play to our strengths. [ PDRs ], GPs, CPs, nephrologists, clearly our stronghold prescribers and so is the case of Sporlac. And there is distribution reach and penetration. And what gives us clear visibility around that is if you really look at Sporlac as a brand, it has negligible presence in 3 to 4 of J. B.'s highest revenue realizing states, which are essentially West Bengal, Kerala, Bihar and UP. These are pockets of strength for us where Sporlac has significant reach and presence. So a combination of all these give us good confidence that we'll be able to further build on to [indiscernible], which has been created.

That is helpful. If you can also comment that why is the total market not growing like 20%, 30%? What I'm asking is why is not gaining a lot of market share from the other options out there?

The probiotic category is still growing at a very healthy rate, 14%, right? It's unfair to compare them to what's happened in the Indian pharma market in the last 12 to 18 months because there we see aberration -- certain categories really exploded and certain being absolutely muted because of the overall scenario. Probiotic was a segment, which indeed first wave pretty much [ drowned ] as was the case with a lot of gastroenterology product category. The demand during the first wave, when it started, significantly suffered. But if you really look at it from a steady-state scenario, this category is outpacing the IPM by almost 300 to 400 basis points.

Okay. Sure. Just a couple of more questions. One is 350 reps. Roughly how many promoting Sporlac out of that?

So the way to really look at it across 3 divisions is the first time the anchor division is for the -- for Sporlac franchise, where we have a team of almost close to 120. And the remaining numbers are broadly equally split between the second and third business. The second business largely comprises of the specialty probiotic. Again, we see a great, great potential there. And the third business is largely the reproductive health, which combines the hormone therapy and the IVF range.

So safe to assume roughly about close to 2/3 of the reps will be largely at least will be promoting then -- the 3 divisions will be what, you said?

Sorry. So the first division is Sporlac-focused probiotics. The second is probiotics across other categories and the third is largely reproductive health. Yes, that's correct.

And last question is on the margins of the company. So if I look at the sales force productivity, it's quite low at about roughly close to about INR 3 lakhs per month. Gross margins are about 70% and -- but EBITDA margin is still high at 33%, 35%. So the question here is that this looks to be largely that as of now more GP-dominated product, maybe I'm wrong. But given the lower sales of productivity and gross margins are not too different from, let's say, J. B. makes or what average company makes, the margin seems to be higher at somewhere between 30%, 35%. So what is the component which is favoring this portfolio that margins are [indiscernible] and gross margin? Typically, I would have thought that EBITDA margin should have be more closer to 25% here. So what's so different is the portfolio, that margins are high?

The way to really [ implicate ] this business is that there are selected brands, driving high productivity amongst a limited sales force, right. Usually, when you really look at probiotic business, where [ we can ] is across a team of 250, 300 reps in [ banks ] in the division and then sell across. The productivity does not go beyond the 60,000 to 80,000 range. It's actually the strength of the brand, the brand equity, which helps drive such great productivity that so far, the organization has been able to reach these kind of [ 60 ] number is in the field of [ 120 odd. ] So that's the way to really look at this point.

Clarity there that total [indiscernible] as a company as a whole, the portfolio that you acquired is still low at 3 to 3.5 [ max price. ] And the product -- my question is productivity is less than the Indian pharma market average. So the gross margins are closer to the item average, but productivity is lower, but the EBITDA margin is much higher than the average.

That's to an extent, right? And also the organization historically has been slightly competitive on the sales promotion and A&P spend, and we go back to the point which Lakshay making. We certainly want to invest more in this category and move on the [indiscernible].

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

Thank you very much, sir, for the opportunity. Sir, I joined late. Can you just [indiscernible] that there are 2 categories, one is specialized probiotic and other is [indiscernible] categories. So what will be our business approach? Will it be through prescription route or OTC route?

It will be -- I think you joined later. Kunal already had answered. This will be basically through prescription route. And with also, Sporlac, it will be a mass probiotic approach. And when we look at Lobun and Oxalo, which are specialized probiotic, basically for -- basically in the field of chronic kidney disease, it will be a specialized approach from -- in the clinics of, in the clinics of nephrologists, and can be very safe. That is what is what we want to do.

The next question is from the line of Vineet Mehta from Sameeksha Capital.

Sir, my question was regarding that we are going to manufacture it in-house. So what would be our utilization level after the acquisition or after the [indiscernible] these brands from our [indiscernible]?

Just a clarification here. We are not manufacturing these products in-house. We have a very strong supply arrangement to ensure business continuity. These products will continue to be sourced from the existing vendor base.

Okay. And my second question was regarding the ROC. If I look, you have acquired for around INR 630-odd crores. And the current -- the current EBITDA margins, the ROC would be around 9%, 10%. So how are you planning to improve the ROC?

Let me take that. I think you're right. Right now, we begin with sort of a high single-digit ROC on the date of acquisition. But as we sort of accelerate the growth for some of these categories, right, we do believe the whole sort of benefit of increased top line will also flow into the bottom line, right? So over the next sort of 3 to 4 years, our endeavor would be to clearly exceed double-digit ROCE even on this acquired portfolio. That's our approach right now.

So after 3, 4 years, it would be at the spend level at the current [indiscernible].

I think that is a bit of a tough ask. I mean we have upwards of 40% as we talk today, I don't think 8%, 9% is becoming 40%. But getting to about sort of 18% to 20% sort of a ring on ROCE in the next 4 to 5 years is something you can surely [ angle. ]

The next question is from the line of Charulata Gaidhani, an individual Investor.

My question pertains to the cash burn or investment that you expect over the next 2 to 3 years? If you could, over time...

So ma'am, at this stage, what we've really looked at is utilization of the existing cash. Like I answered earlier also, we may need some very short-term debt for a few months to manage our working capital. But other than that, there is no sort of real leverage. All the payments, et cetera, we make on GST, et cetera, will come back to us as credit. So from a funding perspective, we right now are fairly comfortable. From a capital allocation perspective going forward, our endeavor really is to, I think, focus only on very strategic opportunities, whether it's on the CapEx or on the organic CapEx side and any potential sort of inorganic opportunities that come our way. But the endeavor will basically be to keep debt as low as possible. Our focus right now is completely to make sure that we basically use the cash that's available on the balance sheet in the most judicious way.

Okay. And my second question pertains to the difference in the networks for [indiscernible] and for the existing products. Are you saying these would be mostly OTC, right?

No, no, [indiscernible]. This is all -- this is prescription, which we shared earlier. This is pure prescription business of INR 160 crores as reported by IQVIA. Total prescription.

Okay. Okay. And how much has been the sales pre-COVID for those products?

It was close to INR 150 crores, INR 160 crores.

Okay. Okay. So it has been flattish?

Yes.

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

Just a follow-up question. You indicated that 350 would be the entire sales and marketing team. So how many of those are actually -- reps are the feet on the street?

Around 300, Rahul.

Okay. Around 300. So that implies that the productivity of this portfolio is somewhere around 5 lakhs.

No, it is around 3 to 3.5 lakhs.

So because the portfolio which you are acquiring has sales of INR 150 crores and then you are talking about reps being 300? Hello?

Rahul, it's the way you calculate the productivity which manages [indiscernible]. So -- but the numbers are broadly indicative of how you're thinking about it.

Ladies and gentlemen, we take that as the last question. I now hand the conference over to Mr. Jason D'Souza for closing comments. Over to you, sir.

Thanks. Thanks very much, Stephen. I would like to just hand it over to Nikhil for closing remarks and we'll end the call after that.

Yes. I would like to thank all the participants. And we hope that we were able to answer all the questions. And once again, stating the presentation deck is available on the website for more details to be known. And we see going ahead this as a strategic investment that JBCPL has done in the first 15 months of me being there at the helm. And we are looking forward with a smooth transition. This investment overall helps us in terms of delivering market-beating growth, which we continue to do at JBCPL. And with this portfolio coming in, what I stated earlier, this helps us to be in top 25 companies in India in pharma market. And overall, look at that, how do we build better -- how do we look at building overall value for our stakeholders and shareholders. And that is the intention overall at the company stage. So thank you once again, and wishing you all good health and we'll continue to engage with you. Thank you.

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