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

Ladies and gentlemen, good day and welcome to J.B. Chemicals and Pharmaceuticals Limited Q3 FY '22 Earnings Conference Call as on the 15th of February, 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 and Pharmaceuticals Limited. Thank you, and over to you, sir.

Thank you, Margaret. Good afternoon, everyone, and thank you for joining us on the Q3 FY '22 results conference call at J.B. Chemicals and Pharmaceuticals Limited. We have with us 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 available on the Q3 FY '22 investor presentation that has been sent to you earlier. I would now 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, 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 and Pharmaceuticals Limited for Q3 FY '22. I'll start with an overview of our performance during the quarter and share our perspective on the business, following which Lakshay Kataria, our CFO, will take you through the key financial highlights, then we'll be happy to take all your questions. We believe that our performance in third quarter reflects a strong business momentum in macroeconomic environment that has continued to be challenging. Revenue growth in India saw positive traction from our renewed Go-To-Market model and new product introductions. This resulted in J.B. becoming the fastest growing company among the top 30 in the industry in current year 2021 as per IQVIA MAT December '21. Further, major parts of our international business including CMO -- CMO business, witnessed a gradual demand revival. During Q3 FY '22, revenues on a reported basis have expanded by 10% year-on-year to INR 601 crore and by 19% to INR 1,800 crores in the 9 months ended 31st December, 2021. Here it is important to highlight that excluding the revenue, which got deferred in quarter 3 FY '21 from quarter 2 FY '21 in the previous financial year, our revenue growth for quarters 3 FY '22 was 23%. So at an organization level, the positive business momentum was maintained during the reported quarter as well. Coming to our domestic formulation business, as per IQVIA data, J.B. was a fastest growing company among the top 30 companies for the calendar year 2021. This was in continuation of our ongoing sector outperformance. As per MAT December 2021, J.B. Chemical grew at 27% versus market growth of 18%. For quarter 3, FY '22, we grew at 27% versus market growth of 10% as per as our realigned Go-To-Market model continued to deliver positive results. Also, it would be pertinent to highlight that our growth is sustainable given that the contribution from our COVID portfolio is insignificant for the India business. Our new product introductions are performing well in the market and this is reflected from the fact that new product contribution is now close to 4.2% to our domestic sales in quarter 3 FY '22, and 4% for 9 months FY '22. These initiatives have been backed up by implementing Go-To-Market model that has repurposed existing resources in an efficient manner via initiatives such as sales force automation, sales force excellence, greater digital adoption, hybrid digital strategies expanded through geographical coverage, also [ entered ] into new therapeutic segments have accelerated the new products' introduction. During quarter 3, the domestic formulation business launched approximately new products, including Molnupiravir, Cilacar TM, Azovas-T. These initiatives may gather further pace after the recent announcement acquisition of brands and related assets from Sanzyme Private Limited in the area of probiotics, therapeutic nutraceutical and reproductive health market. As you know, Sanzyme is a leading player in probiotics and hormone segments with a portfolio of brands that includes Sporlac, Lobun, Gynogen, Pubergen and Nano Leo. Post this acquisition, we are among the top 5 probiotics big player with additional synergies across our strong prescriber base in gastroenterology and nephrology segments. In addition to this, we have also entered into IVF segment. We will also derive leverage from J.B. coverage and reach into states like West Bengal, UP, Bihar, Kerala, where overall the Sanzyme presence is negligible. Overall, we expect to jump 2 ranks in our IPM ranking as we start reporting combined numbers. Coming to our International business, we witnessed steady revival across geographies, except for muted demand in U.S. generic businesses. South Africa, our home market, continues to record in both public and market by leveraging retail pharmacy relationship and our excess in both in-house as well as third-party products. In Russia and CIS region, we delivered strong growth within our prescription branded generic portfolio during third quarter. In the CMO business, where we addressed both pharma and consumer sectors through our presence in lozenges, J.B. performed well due to demand revival in key markets. Our API business run rate also improved significantly versus quarterly run rate as seen in H1 of the current year. Overall, supply chain disruptions impacted the business during quarter 3 as well as freight costs increased significantly for all key markets. However, with COVID situation normalizing, we are seeing strong signals of demand revival, especially in our CMO segments for our international business. We now see multiple levers for our continued outperformance. This includes leveraging our existing Go-To-Market model strength in India business, maximizing new product introduction, lifecycle management of -- lifecycle management opportunities and strengthening our international market through portfolio augmentation. All these initiatives should translate into announced long-term value for our stakeholders. Going ahead, we continue to remain upbeat about the domestic formulation business, the successful implementation of Go-To-Market model, new product introductions, lifecycle management of our big brands and Sanzyme portfolio acquisition will enable us to continue to record market-beating growth for the business. Post-COVID, our international market should bounce back, which we are seeing early signs of revival. We also see medicated lozenges segment picking up as the order book from our global customers have gathered momentum. Our focus will continue to drive faster top line growth with healthy EBITDA margins, which will enable us to create further value for our shareholders. On this note I conclude my opening remarks. I would now request Lakshay to share with you a brief perspective on our financial performance. Over to you, Lakshay.

Thank you, Nikhil, and a very good afternoon to all of you. And welcome to our Q3 FY '22 earnings call. I will now take you through some of our key highlights during the quarter. So overall, during Q3, we recorded a revenue growth of 10% at INR 601 crores and for 9 months at INR 1,800 crores with a growth of 19% year-on-year. As mentioned earlier, the underlying revenue growth is 23% due to revenue deferral from Q2 to Q3 FY '21 in the previous financial year. Our strong revenue momentum continues for the overall business and both domestic and international business saw double-digit revenue growth during the quarter. Domestic formulation revenue was up by 20%, led by large brands and market-leading performance in non-COVID therapies. In the 9 months, domestic formulations grew 32%. Going forward, with the acquisition of Sanzyme brand, we expect domestic formulations to contribute more than half of company's turnover. International business reported a revenue of INR 315 crores during the quarter, which was up 3% due to high base last year, as explained earlier. Within this, the export formulations business revenue came in at INR 241 crores, CMO at INR 50 crores and API at INR 24 crores. Within formulations, there was a positive growth contribution from both Russia and South Africa. Our gross margin profile during the quarter remained steady at 66%. There was a significant inflation witnessed in API and packing material cost across the industry. We managed to maintain gross margin through cost optimization initiatives and judicious price increases. Our major fixed operating costs are now running at normalized levels. We have now completed our build-out of the organization and thus employee benefit expenses, excluding the non-cash ESOP charges, have increased marginally. Other expenditure witnessed sharp increase during the quarter on a year-on-year basis because of significant escalation in logistics and freight cost as well as substantial increase in power and fuel cost. This trend, I believe, stands out, not just for J.B., but also for our peers in the pharma sector. Despite the sharp surge in expenses, we largely maintained our operating EBITDA margins, excluding non-cash ESOP cost at 25.5% for the third quarter with the operating EBITDA of INR 153 crores, similar to the previous quarter. While operating EBITDA seems to have declined year-on-year from INR 171 crores to INR 153 crores, after adjusting for the base impact due to revenue deferral, the operating EBITDA has grown by 7% to 8% on a year-on-year basis. While cost pressures are expected to remain in the short term, in the medium to long term, any future benefits and normalization of material and packaging costs will allow us to improve our margin profile or provide adequate opportunities to invest in growth opportunities with similar margins going forward. Also as fixed cost overheads are now stable, we can expect other expenditure to provide further room for operating leverage in the medium to long term. Other income during the quarter was significantly lower on a year-on-year basis. Q2 treasury yields have been lower in quarter 3, and a one-off income of INR 34 crores in the previous year on account of sale of certain trademarks. As you know J.B.'s acquisition of Sanzyme brands, we have invested our cash resources on our balance sheet, we paid the consideration for the transaction in the first week of February. This is a part of our strategy to expand our footprint in India and will service financially well as we grow the Sanzyme portfolio profitability, especially in this volatile financial environment. I would also like to take a moment to explain the overall PAT development for the quarter. Sequentially, the PAT softened from INR 98 crores to INR 84 crores due to treasury yields softening. Year-on-year decline from INR 154 crores to INR 84 crores in PAT can we explained by 3 large factors; our non-cash ESOP expense of INR 25 crores during the quarter, trademark sale of INR 34 crores in the previous year, and the revenue deferral impact in the prior year base. Going forward, we expect the business to expand by leveraging the existing base of manufacturing, distribution and relationships. The larger ecosystem available from Sanzyme will provide further cross-leverage opportunities. Overall, we remain focused in our pursuit of profitable growth, strong cash flow generation, and creating ongoing stakeholder value. With this, 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 the questions. Thank you.

[Operator Instructions] The first question is from the line of Abdulkader Puranwala from Elara Capital.

Sir, would it be possible to provide the India growth breakup into price, volume and new launches?

Lakshay, would you like to take this?

Yes. So overall like Nikhil alluded to, the India growth has a component of 4%, roughly that came to new products. And at the overall level, we [ YTB ] have seen a growth of about 30% and between price and volume, price will be closer to about 10% and rest would be volume.

Got it. And my second question is on the margin side. So if you adjust for the ESOP charge, the margins would be somewhere around 23% to 24%. So ahead -- what is the kind of margin should we look of over the -- this 23%, 24% would sustain or -- I think the business can go up to 25% on the EBITDA level?

Yes. So let me first just clarify the operating EBITDA for this quarter. Our operating EBITDA for this quarter before the ESOP charge is INR 153 crores. What you see as reported EBITDA INR 128 crores includes ESOP charge of INR 25 crores. So if you adjust for that, our EBITDA for this quarter is roughly 25.5%. And like we have guided in the past, I think we would maintain close to INR 100 crores of operating EBITDA. Hope that answers your question?

Yes.

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

Yes. My first question is on the India business. So last time you had mentioned that we are looking at around INR 100 crores of normal run rate now. So this quarter we have done slightly lower around INR 278 crores, despite our new products contributing substantially around 4.2%. And also, if I'm not wrong, you have taken Rantac price hike in December. So that should have added on top of that normalized run rate of INR 300 crores. Can you explain where the volume was little lower?

So, Naresh, this is Nikhil Chopra here. So quarter 3 was a soft quarter for India because of the lean season for Rantac and Metrogyl that are our big brands, but you are right that our run rate is close to INR 100 crores. And going ahead, we see the trajectory close to INR 100 crores and above in the coming time with new products contributing and eventually the Rantac price increase will bake in.

So the -- so this Rantac price hike should tragically obtain fully from Q4, right?

Yes. Some part has been absorbed for Q3 and we'll have Q4 benefit also.

Okay. And second on the International this year has been a bit soft due to higher inventory in some geographies and logistical issues. But for FY '23, how are we placed in terms of growth in different geographies, if you can explain?

So what I shared in my earlier commentary that when we see the order book for quarter 4 and quarter 1, which I can talk right now, we are seeing demands bouncing back in our branded generic market, CMO business is seeing a big revival and equally Russia and South Africa, which are our next to home markets, are also -- have also performed well in quarter 3 and quarter 4, quarter 1 also. We look for the same performance. So our run rate for international business, which now we have bounced back INR 300 crore plus, should see a positive momentum going ahead.

And in terms of price increases, which we have taken -- so have you considered the increase in overhead cost as well, freight and the fuel power cost?

Lakshay, would you like to take this?

Yes. So overall, I think from a pricing perspective, we are now in conversations with a lot of our customers in the international markets. And the conversation really is around the points you made, which is that the freight and the fuel costs have risen significantly and also on the API [indiscernible] part, there is a significant inclusion. So pricing will continue to be a key focus area for our international businesses as we move forward.

The next question is from the line of Vishal Manchanda from Nirmal Bang Institutional Equities.

Sir, just a clarification on Rantac. So, what percentage of Rantac sales during the quarter would have come from higher prices?

So around 60% plus sale would have come from total increase. But equally, Vishal what you don't understand also with the entire cost of API foil, packaging material going up, conceptually, this is just helping us to maintain the right EBITDA margin overall for the company.

Okay. Okay. API costs have gone up during the quarter and not only for Rantac, but across the Board basically?

Yes.

Okay. And sir, second on the lozenges business, can you kind of share some color on any developments there in terms of new contracts or new product development, which is basically going to help you in the near term?

So there are couple of things which have been happening in the world of CMO business, particularly in lozenges, which we shared in our last conference call that we have added [ Reckitt ]as a new partner, who has come in. And equally the good sign is that across the CMO business, we are seeing a big demand bouncing back. So that is a positive sign. We are working on some new novel concepts in the world of lozenges, which are more consumer-friendly. And those novel concepts includes products like melatonin, products, which we are developing for the world of immunity plus cough and cold. So all those portfolios are on the anvil where developmental work has been happening. So going ahead the strategy would be, how do you offer novel therapeutic portfolio to our existing partner, be it for P&G, J&J, [ Inova, Reckitt ] and equally add more partners where the entire business development work is on.

Okay. Sir, on the new client addition, [ Reckitt ] has that started delivering or it will scale up in time?

It has started just a couple of products. We have started working -- started supplying to [ Reckitt ] but overall, we should see a good demand in the next financial year.

Understood. Sir, other expenses, would they stay at current levels and ESOP expenses also around the same level for the coming quarter?

So ESOP expenses would be close to what Lakshay spoke about -- would be close to INR 25 crores and other expenses when Lakshay gave the commentary in terms of the entire capability development that we are putting -- that we have put in place have normalized. Cost of goods still conceptually, we don't know what is coming in next couple of quarters, but overall from a operational perspective, our costs are close to normal.

Understood. And just one final one on -- some comments on your initiatives on the nephrology front. So how is that shaping up in terms as a portfolio -- nephrology portfolio?

For nephrology portfolio, we have niche division, which has been working with 2,000 nephrologists in the country. Those are our -- all the portfolio is a mix of our supporting products. But what we are trying to do with nephrology as a specialty because nephrologists are a big supporter for our brands like Cilacar and Nicardia, where we continue to engage with them. And continue to look at in terms of how we can build these brands bigger and equally how do we support this facility in a supportive care portfolio where our team of 30 people is going and working with them. But there is a good uptake in terms of the new products that we have launched, but all those have its own gestation period. 6 months we have been in the market with our new products, which is 0.5 dozen products that we have got in a supportive care therapy. But the bigger picture that we want to paint is how do we take Nicardia and Cilacar to next level.

Sir, is dapagliflozin also getting share from the nephrologist?

Dapagliflozin has more been detailed in the clinic of MD Medicine, cardiologists and diabetologists. And dapagliflozin, just to share with you, we're the 60th company to launch dapagliflozin. Today we are in top 15. Our run rate is close to around 75 lakhs per month. And we intend in the next quarter, next quarter 3 to 4 months, we should be in top 10.

Just to add, for nephrology with Sanzyme acquisition, we have a lot of cross leverage ability opportunity also in the field of probiotics. And that's also part of our plan.

Yes.

Right, sir.

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

Hope I'm audible?

Yes, Rahul.

Yes. Just a few clarifications. So you said that Rantac prices contributed during the quarter. So far, for what quantum of duration we saw the benefit on account of Rantac during the quarter? Would it have been 1 month?

Kunal, you would like to take this?

Yes. So Rahul, substantial part -- just over 1 month close to 45 days of demand for Q3 was lift through Rantac. However, from a pure volume perspective, when we look at it, right, we had earlier also mentioned that the demand would moderate in H2 because the Q1 run rate was -- had seen a huge surge due to second wave of COVID. So surely the -- from a volume time point the demand moderated and operated at a steady-state scenario in Q3, but close to 40 to 45 days of sale for Q3 was attributed with the price increase.

Sure, sir. Now if we look at India portfolio growth for next year, our base India business has been growing at mid-teens. On Rantac, we will have the full year contribution next year as well as this enzyme portfolio contributing. So how should we look at your India business growth for FY '23? So do you think that the momentum, which we had in FY '22 that will be sustained in FY '23 as well?

Okay. So, Rahul, if you look at the way we are positioned, overall, there are 3, 4 hypothesis when we look at India business. First hypothesis is 70% of our business is coming from big brands that is Cilacar, Nicardia, Rantac and Metrogyl, which the teams have been working and how do we make the big brands bigger and continue to gain market share. So that is agenda #1, because that is a big chunk of our business. Second, obviously, what you're talking about Rantac price increase that should give us benefit. And thirdly, of course, with the transition happening of Sanzyme portfolio, all this coming together, the guidance that we would like to give at this moment of time that we will be delivering market-beating growth with a significant difference. And overall, look at in terms of how with the widened portfolio that we have got with big brands, with new productions and with the Sanzyme portfolio, how we can serve more and more number of patients and deliver market-beating performance.

Sure, sir. So this market-beating outperformance will be excluding the Sanzyme portfolio. So contribution from Sanzyme will be on top of that?

Yes. Yes.

Sure, sir. And in terms of this Rantac price hike benefit for next year, you have stated that the price -- the API has also seen a price increase and our earlier expectation was that on Rantac, we could see margin benefit playing out for us. So do you think that thesis still holds that the price increase for Rantac will help us to improve our margins in FY '23?

Kunal, you would like to take this?

Yes. Yes. So Rahul, what you have seen over the last 2 to 4 months, there has been a significant price escalation in ranitidine API costs, right starting Q3 onwards, which to a large extent has neutralized the actual margin benefit, which we would have otherwise gone through price increase. Our focus will be to continue on maximizing the price hike benefit, like, but at this stage all we can maintain is that a significant chunk of margin benefit, which was to accrue, had to an extent got neutralized because of the ranitidine API price.

Sure, sir. But are you expecting the API prices to moderate because generally the commentary across the industry is with conclusion of Winter Olympics in China and by end of Feb, the API prices would start moderating. So do you think that if API prices moderate, we can then see this benefit on Rantac price hike next year?

What we are certainly seeing is, hoping is that, the prices don't go from the current levels. There are certain product commodities where the normalization will be much more rapid and it's a classic demand and supply situation. With respect to ranitidine, there are not many suppliers, so the supply base tends to be limited. What we have very sure of that we should be able to hold on to the current price level from a mid-term perspective.

Sure, sir. Just one last question before I join back the queue. Also it has been still early days, 2 weeks only since you closed the Sanzyme acquisition. But any thoughts in terms of how the integration for the portfolio is progressing? And what you have seen in terms of your initial interactions with the MRs or doctors as far as your Sanzyme portfolio is concerned?

We are very hopeful and positive about integration giving us good results. The last 2 weeks, there have been a lot of cross synergies, which have kind of come up. We are happy to report that the business is going at -- signifies as a growth before our acquisition. Our key endeavor is to ensure that there is no disruption at this stage. From a future strategy standpoint, we are certainly seeing prescriber synergies as Nikhil mentioned with respect to nephrologist, the MD positions where the probiotic will be a big, big opportunity for us. We see geographic synergies because 3 to 4 states, they have negligible presence are also our pockets of strength. And we see product synergies, for example, probiotics, which is formulized. We've extensively prescribed as a co-prescription with our Metrogyl as well. So, there are lot of things which we have to kind of bring it together. And so far the response has been very positive.

The next question is from the line of Amit Kadam from Canara Robeco.

So I have couple of questions, sir. So starting with like maybe just wanted to know your like -- because Russia is a key market and the thing geopolitically whatever is or maybe what we are seeing it. What's your take? And what's our risk mitigation strategy there? So that's point #1 -- question #1. Second, I just wanted to know -- pick your mind on this particular your CDMO, where in medium term you want to grow this particular business with change of management and you -- and then the senior management also and the promoter side also. How do you see this thing shaping up maybe from a 3- to 5-year bucket? And my third, I just wanted more clarity that couldn't get clear on the ESOP thing. How much charge-off is yet to happen every quarter? And maybe like, just wanted to know what will be the per quarter charge-off or maybe till this completely goes off?

So let me take the question of ESOP then we go to the Russia question. So as far as ESOP is concerned, we are basically -- we expended INR 25 crores in the last quarter. Prior to that, our expense is about INR 13 crores. Overall for the fiscal, it will be about closer to INR 63 crores, right. That's as per this fiscal year is concerned. Next year the fiscal will have a spend of about INR 68 odd crores. And then it starts tapering off significantly.

Sorry. I did not get it, FY '23, how much?

FY '23 will be about INR 68 odd crores.

Okay.

And then it will start tapering off significantly.

Okay. Fair enough. And then balanced...

Kunal, you would like to take the question on Russia and CMO?

Yes. So with respect to Russia. we are closely monitoring the situation with uncertain and slightly volatile. However, we need to look at what are the variables under our control. So over the last 1 month, we have been extremely watchful and mindful of our supplies through the Russia and CIS markets and trying to do everything we can to ensure business continuity remains. And the other thing, which we are extremely watchful of is the receivable situation. So these are the 2 areas where we're like putting very high level of check mechanisms. We do believe that the situation is relatively better than that the outlook was a couple of weeks back, but it's wait and watch as of now. All we can do is, be much more cautious about our overall receivable situation and also ensure that there is no real loss from a business continuity standpoint. With respect to the second part of your question, which is CMO, this is one business segment that we continue to be extremely, extremely optimistic. In fact, from -- if one really looks for at the sequential trending of this business over the 9 -- last 9 months, we have seen the demand reviving back in our key pockets and then our major customers. Our CMO strategy is certainly going to be 3-fold. One is expanding the basket of products and offerings, which we have to our current main anchor clients. So our main anchor clients including big names like P&G, J&J, [ Inova ]. We have been safely working with them on introducing new concepts like Nikhil mentioned immunity booster concepts, immunity with cough and cold, different finished formulations for active like melatonin. These are certainly kind of areas, which we are closely working and are in the product development life cycle right now. And the second part is, add more anchored clients and increase our presence with the current clients in other geographies. So addition has already started. You heard of from Nikhil mentioning [ RB ] we had our first shipment to them in the last month of Q3. We are certainly expecting good ramp up from them for the next financial year. And what we really want to do is, add a couple of more market lines, in which [indiscernible] recent names, which we mentioned. So there'll be a lot of cost in activating business development initiatives to grow our CMO business and we continue to be optimistic about this from a mid and long-term perspective.

I understand, but just wanted to know more on like a little granularity, for example, if we want to shape this particular business, right now, we have -- maybe doing like INR 200 crores to INR 250 crores odd thereabout. So if we have some objective on mind -- so because this will require a front-ending of kind of a investment, be it like ramping up the R&D people or maybe the facilities, so that does it -- how the body shopping on that would happen to our clients. So just wanted to know how that will also happen, like in terms of investment and then how do we translate that in your future numbers?

See there are 2 parts from managing the infrastructure and the resourcing part of it. The good thing is that we are already covered from an infrastructure standpoint. So our current capacity utilization is close to 60%. We have 1 line, which is pretty much can be activated and made operational if our business ramps up. So there is no real future CapEx investment, which we see in the business. From an R&D standpoint, whatever needs to be done, has already been activated. Over the last 7, 8 months, as Nikhil mentioned, that we are also that R&D reorientation and with focus been gone CMO related projects was closely monitored. And we are at a stage where we have advanced concepts of all these offerings being taken to our clients. So the R&D reorientation and ramp-up has also happened. The third area is where you know they actually trust on BD acceleration and that's where we work in one. So if you concern from -- if your external concern is more from an investment related to infrastructure of resources, that is already being taken care of.

The next question is from the line of Alok Dalal from CLSA.

One question on the U.S. market. What is the current sales in U.S. at the moment?

Kunal, you would like to take this?

Yes. So we don't want to really kind of give numbers of our international business [indiscernible]. For us, our Q3 levels are rightly soft. But as our order book stands right now, we see the demand picking up to the H1 levels of FY '23.

And Kunal, what is the outlook for the U.S.? How do you see the U.S. expanding over the next few years? What kind of products are you working on?

So we have always maintained that we have a very selective approach towards our U.S. business. We have an aspiration of looking at 3 to 4 filings at the year and a lot of our R&D efforts were focused to the back. But these are offerings where we believe our strength really lies. So we are not talking about getting into specialty or complex generic. Our strengths are more on large-scale manufacturing and platforms such as OROS platform and we want to continue to play to their strength. Our focus will be ensure selective ramp up 3 to 4 filings for the year, which would add to our U.S. cities, have a very stage grade approach and as we see success, we do ramp up accordingly. That's the way we want to play to our U.S. business.

Okay. And on the international markets, any plans to expand operations outside Russia and South Africa?

So Alok, this is Nikhil here. So outside India, Russia and South Africa are our own markets. And if you look at the entire ROW business, ROW business is in 4 clusters that is Sub-Sahara, Africa, Middle East, Latin America and Southeast Asia. So those are the markets that we are present outside India. Now, the way we are looking at this international market, which is ROW-branded generics, Russia and South Africa, is not to go wide, but to go deep. And this entire -- these -- all these markets have been deprived with the new portfolio. So, the management has been working in terms of how do we get new products introduced in these markets and how do we go deep because the relationship that we enjoy in ROW market with some of the big distributors who work for us is immense. So there is a immense scope in terms of what we want to do with the introduction of new portfolio and equally for South Africa and Russia, there also -- Russia, this year, we have introduced 3 new products. South Africa, there are some dossiers, which we had bought, where we are doing -- where we are looking at how do we launch those products in private markets. So that is a play that we want to work on. So we don't want to get into any new markets, but equally, we want to look at that, how do we go deep to at least get the better output with existing portfolio and new introductions.

Okay. So but, Nikhil, will the idea be to keep it 50-50 between domestic and export?

Eventually, along with the Sanzyme acquisition that we have done, India business would be 55, ROW would be close to 45. Going ahead, the way we have engine running in India business, we are looking at how do we at least get it, India business close to 60% and international market close to 40%. That is a aspiration we have kept. Now overall we'll see in the coming time our intention within India business Alok. We are looking at how do we have a better chronic play, that is the intention.

Okay. Understood. And just one last question. The pressure on gross margins -- how should one think about it, especially in the coming few quarters?

Lakshay, you would like to take this?

I'll take that. Thank you. So from a gross margin perspective, I think if you look at what's happened below, I think we sort of held forth pretty well with some of the interventions we've done in terms of long-range contracts and certain inventory interventions. But our reading right now is that costs have seen a further sort of scale up post-December. So I think at the current sort of level of gross margins of 65%, 66% is where we would want to hold. And we would want to sort of -- we will have to work still significantly on our pricing lever and also on some of the cost optimization projects that we are running internally to maintain that level. Otherwise, I think from a inflation perspective right now, I think there is still more pain to [ sort of cut ].

[Operator Instructions] The next question is from the line of Sonal Gupta from L&T Mutual Funds.

So just on, I mean, the other expenses, right, last quarter you had about INR 14 crores of onetime consultancy charges, but even as there was -- have dropped off, we haven't seen that much of a decline. I know you called out freight et cetera. So could you just talk about that as to, I mean incrementally, what has been the pressure point sequentially?

Yes. I'll take it. So basically if you see quarter-on-quarter expenses have jumped up by about INR 7 crores, excluding manpower, and like you rightly said, if you square off the INR 13 crores, INR 14 crores one-off, then we are still seeing an increase of INR 6 crores, INR 7 crores, which is primarily happened in 2 lines of our P&L. One is freight and the other is power and fuel. Both on natural gas prices and on the freight side, we've seen further hardening towards November and December. So that's what sort of explains the operating expense, quarter-on-quarter.

And like you mentioned to the previous answer, so you're still seeing this like on a full quarter basis, I mean there could be more pressure in Q4 on this side?

Well, there is pressure, I mean we are hearing that some of the Electricity Board et cetera are putting plans to take up the power tariffs. So I think it's sort of 1 wing situation, but we are also working on steps to mitigate that, right. So we're also looking at steps to mitigate our utility costs, our footprint, we are getting into solar. So there are mitigation plans also, so maybe 1 odd quarter here and there, but we should try and hold to the fixed operating costs.

Got it. And how much of your portfolio in India by value would be under [indiscernible]?

Around 30%.

And I mean like, so, just given that you've got Rantac increase, would we be eligible for taking an increase in April again or we'll not?

Yes. We will be taking the price increase whenever it comes on the existing portfolio, which is outside price control and whatever WPI comes for the control products, we'll be taking that price increase.

Right. No. So I'm just trying to understand given that Rantac is a big part of that [ Analym ] portfolio as well. So will that -- will you be allowed to take another WPI related increase or that's...

Yes.

So you can take on the full 30% of your portfolio?

Yes.

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

I had a simple question. I wanted to understand your perspective on the long-term growth, which is of the -- growth, which is of cilnidipine, I mean the underlying molecule for Cilacar. So wanted to understand, firstly, as we see more SGLT2 drugs going off patent, so do you see the long-term growth of this in the molecule shrinking to some extent and the share being taken off the SGLT because when I look at the data on trials, a lot of the trials are actually giving positive data on the ability of the SGLT2 class molecule should give protection for 2 hypertension patients with kidney -- associated kidney problems. So any view on this would be helpful.

Kunal, you would take this?

Yes. So Kunal, SGLT2 is a very, very different class of molecules. Our cilnidipine current share is Calcium Channel Blocker. SGLT2 molecule is the line-up to extend for diabetes patients. Now there are studies which really indicate that there are certainly some benefits affiliated for SGLT2 molecule as a branch, either with respect to heart failure or management of better renal complication, but that does not mean that it becomes see first or second-line therapies for anti-hypertensive treatment. That's point #1. Second thing is, when you really look at the SGLT2 class, it's not a therapy, which maybe recommended for all age group or all types of demographics, they may be kind of the -- have a very different clinical profile. They certainly do not see any real primary conflict with SGLT2 as a class. It's a very different class where diabetes will be the primary indication. For us, what we really want to work on is cilnidipine is the most preferred choice of anti-hypertensive drug class, which will be prescribed for comorbidity issues, including primary [indiscernible] complication. So that's how we see. And we have seen a lot of confidence coming in from prescriber categories such as nephrologists, diabetalologists, cardiologists and physicians and the -- we really see the recent vibe is continued state in this category of molecule, which is really depend, will not continue over the mid and long term.

Sure. So just to follow up on this one. So a few of the attributes, let's say 3 crucial reasons for why this molecule has done so well as compared to the other molecules in the CVR space and associated CVR space in the last 3, 4 years or 5 years I would say. It's running high double-digit in volumes. So -- the molecule, as a whole. So, I mean, can you give me 2 reasons to understand, which has worked in favor of [indiscernible].

The most primary reason why CCB has a lot of acceptance is because apart from being a very effective standalone antihypertension class ultra Calcium Channel Blocker, it has a very soft side effect profile and patients which -- who suffered from comorbid indications or have complications, more on the renewal side, they see very limited side effect profile. In India, what tends to happen is most of the times patients, when they approach a doctor, they are in Stage 2, Stage 3 or antihypertensive with -- already these comorbid conditions being that we have to -- with respect to the clinical profile. So doctors are very particular about the medication which they are prescribing and they should not have any further side effects on various other parts of the organ. And that's where cilnidipine has seen very, very strong acceptance.

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

Just continuing brand-related discussion, just wanted to understand the reason behind expansions that we have launched our bigger brands, what kind of potential do you see for them? Can they become as big as our larger franchisee? Is there that kind of market pickup, market share gain that you are seeing? Or preference from doctors that you are seeing on the prescription level? Anything that you can delight on that?

So Cyndrella, this is Nikhil Chopra here. Overall, the intention -- see J.B. never -- historically, has never been that great in new product launches. So what I shared in my earlier commentary that the new product introduction value is now close to 4%. That itself is a big achievement and going ahead, we are looking forward at how this can at least come close to 6% to 7% in the coming time. Overall, when we look at new product introduction into the mix of 2 categories, one is lifecycle management as you earlier shared. So obviously, we have Cilacar, Cilacar T and now we have what Cilacar TM that eventually helps us. Cilacar being a INR 300 crore franchisee in the coming time, in next 2, 3 years, we are looking at how overall Cilacar as a family becomes INR 500 crores. So that is the intention. Secondly, some of the new introduction that we have got into new categories of business, particularly in the world of pediatrics, in the world of respiratory, in the world of antibiotic that we have got into. Out of 12 products that we have launched, we have identified around 5, 6 products, which if we are able to make a revenue mark of around INR 12 crores to INR 14 crores in 18 to 24 months, that itself will be a big achievement for J.B. as a company. Because our 70% of revenue is coming from big brands. And if -- these new launches also helps overall fueling the growth, this combined entity of existing brands, lifecycle management and getting into new therapeutic area will overall help us, what I earlier shared, in terms of delivering market-beating growth. So that is the intention going ahead when we look at new introductions.

This is very, very helpful. Just to add to that, I mean, if I take your commentary in the right direction, what you're trying to tell me is, we are very focused on gaining market share in our core brands as well as new launches. I understand this. If I put ourselves today, say, in the domestic market zone, we're still closer to INR 1,200 odd secondary market turnover run rate at MAT level. Do you -- what are the mutual gaps that you feel are product-wise, which are the most increasing areas that you might have already identified to take us to INR 2,000 crores range, and from there around another next leg of growth. So what are the strategic point of view, where we still have some gaps, I understand, Sanzyme will add some more to this. But from organic perspective, from a brand perspective and when do you see reaching there like you know, I'm sure this must be part of your strategy?

So with Sanzyme entity being added, Cyndrella, we will be close to INR 1,400 crores next year. So that is where we stand. INR 1, 200 crore was the current run rate. Now when we talk about therapeutic areas, we are present in 5, 6 therapeutic areas. If I have to talk about cardiology, which we have extended to cardiometabolic with the introduction of dapagliflozin and vildagliptin, that is what we wanted to do. We are a big player in the world of gastroenterology and nephrology. With new products that we have launched in the world of pediatrics and respiratory and with the Sanzyme portfolio coming in, it only adds to the -- or strengthens the area where we are present. See we want to remain focused. We have close to around 2,000 people on the ground and with Sanzyme 300 people more being added, we see the opportunity in terms of how do we improve the per-person productivity, which stands at around INR 5.5 lakh per person. And this can easily grow for next 18 to 24 months without adding any feet on the ground at a healthy pace of 12% to 14%. So that is what we want to do. We just don't want to get into new therapeutic areas. We want to strengthen our existing therapeutic areas and Sanzyme was in -- Sanzyme acquisition was in that way the step that we took. So the therapeutic areas where we are present and the equity that we enjoy with the healthcare professionals, we want to strengthen that and we want to do somewhere, which conceptually helps more and more patients who can take medicine from the J.B. house and equally develop a good relationship with the healthcare professionals, particularly in the therapeutic areas where we are present.

This helps. Just one more query that I have in line in terms of our input cost pressure that we are experiencing as an -- and the entire industry is experiencing. But see in the follower year, in FY '23, when we get a chance to take the WPI link inflation for our [ Analym ] portfolio. Should the increase take care of our raw material inflation like going ahead, do you think it should be surprising to take care of our EBITDA margin sustaining about 26%?

So Cyndrella, as earlier also I have guided that last 3 quarters, if you see, we have been delivering INR 600 crores revenue every quarter and our EBITDA margins -- operating EBITDA margins are close to around 26%. So with the WPI price increase coming in that should help and with the pressure that we have on the input cost, we aspire to deliver market-beating growth in the geographies where we are present, we are looking at how do we augment our presence in our international markets by getting new introductions and equally drive operational efficiency within the organization to at least deliver same margin of EBITDA on a market-beating performance in terms of top line because fundamentally as a company, we believe in profitable growth.

The next question is from the line of [ Ankush Agarwal from Search Capital ].

So firstly of our initial strategy that we presented in March '21, so we have taken steps on the therapy diversification and also augmented our portfolio on the domestic side with the new M&A. So from now on, what would be our strategic priorities going ahead?

So what was stated earlier also is, look at India business, with the Sanzyme acquisition, our contribution from India business will be close to 55%. So that is where we stand. We were 32nd ranked company in October 2020. MAT December, we are with Sanzyme portfolio combined -- for the month of December, we are 25th ranked company that is where we stand and our intentions are how do we organically and with this Sanzyme acquisition, we want to be in Top 20. That is where we stand from an India perspective. So the entire transition and the integration with Sanzyme happening in India business that is key for us. That is what we have guided earlier also. Second, what I stated earlier was, the entire concept of big brands getting bigger. That is what we want to do and that will happen with closely working with the healthcare professionals and the therapeutic segments where we are present, particularly in the field of cardiology, nephrology, gastroenterology, and respiratory. That will enhance our presence in those therapies where we have introduced new products in the portfolio that we have. That is point #2. Third our new introductions have started contributing, which is close to now 4% of our revenue. Going ahead, we are looking at how does it go to 6% to 7%. That is the intention for -- that is our strategy that we have -- what we have built on for India business. And all this is backed up by a lot of discipline, which has happened in the system in terms of putting right processes and systems in place, getting into the world of sales force automation, sales force excellence, digital retailing, digital adoption. So all this is backed up when we talk of market-beating performance. About international business, what we have guided earlier, the play that we want to have is, particularly in our home market outside India, Russia, South Africa, where we will enhance our presence and go deep by getting new products introduced and look at that how do we leverage the existing setup that we have got. So outside India business, if anything, I'm passionate about is the entire world of CMO, particularly in the world of lozenges. And between me and Kunal, we shared that the entire strategy is looking at how do we get into the new offerings of portfolio and how do we add new partners in this world. So this is where we stand. And at the end of the day, what we are looking at that the run rate that we have got for this year close to INR 600 crores, how do we maintain that run rate for quarter 4, look at operating EBITDA close to 26%, 27%, and there are multiple levers, which I have stated earlier, which will overall help us to deliver market-beating performance.

So broadly it stays the same what we discussed in March '21. Got it. And sir, secondly, would it be possible to quantify how much of domestic growth during the quarter was led by Rantac price increase?

So like we said overall from a Rantac perspective, 50% upward is the volumes of Rantac came through the Rantac -- the new price.

Right. Right. But on the domestic growth of 20%, how much of that will be because of the price increase, because we don't know how much exactly Rantac's contribution to domestic business?

Sorry, we won't be able to share that as of right now.

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

Thanks. Thanks, Margaret. I think with that, since we have no questions, I think we'll end the earnings call of J.B. Chemicals and Pharmaceuticals Limited for the third quarter. Thank you, everyone, for joining us on this call.

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