Mega Lifesciences Public Company Limited (MEGA) Earnings Call Transcript & Summary

Very good. Thank you. Okay. Welcome, everybody. I think we are just about on time, 3:00, 3:01, I'm sure whoever has to join is here already. So welcome again to our Quarter 1, 2022 Call. Thank you, everybody, for joining us today. My name is Vivek, CEO of Mega Lifesciences, Vivek Dhawan. I have along with me, Mr. Manoj Gurbuxani, our Head -- Deputy CFO, and he's also part of the Investor Relations. He'll be talking -- taking you through our financial performance, and I have Francis Rego, our Vice President of Finance, he's also with me here in the room. Thomas is not here, but he's also on the call. So we are all here to answer your questions and take you through our performance for 2022 Q1. So without wasting any time further, I will hand it over to Manoj, and Manoj will now take you through the financial performance. After that, I'll speak to you for a few minutes, then we'll open the floor for questions. Thank you, everybody. Over to you, Manoj.

Thank you. Thank you, sir. Good afternoon, everyone. I'm Manoj Gurbuxani from Mega Lifesciences. A warm welcome to everyone for the Quarter 1, 2022 Earnings Call. I'll give you a brief synopsis of the financial performance of first quarter 2022. Our overall revenue has been at THB 3,820 million for quarter 1 2022, reflecting a growth of 16.8%. The branded business grew at 32.6%. All the regions performed well. Southeast Asia contributed to the maximum for branded business. Overall, for branded business, the sales has been at THB 1,954 million on 1Q 2022, reflecting growth of 32.6%. In terms of revenue mix -- in terms of revenue mix between branded business and distribution business, branded business contributed to 51% of the overall revenue as against 45% in first quarter '21. And the distribution business contributed 46.8% to the overall revenue as against 53.4% in quarter 1. Overall, the distribution business in quarter 1 grew at 2.3%. In terms of Southeast Asia and Indochina contributing to the overall revenue, 86.4% of the business came from Southeast Asia and 76.9% came from Indochina. In terms of gross margins, our gross margins have been at 44.8% of the operating revenue for first quarter 2022 as against 38.4% in quarter 1 2021. The relatively higher gross margin is because of the branded business contribution higher to the overall revenue and -- which has resulted in a favorable segment mix and better gross margins from the branded business. Branded business overall gross margin has been at 69% in quarter 1 2022 as against 64% in quarter 1 2021. The overall gross margins of Mega We Care business is influenced by revenue growth, by product mix, by country mix and the level of output, among other factors. And to a limited extent, the improvement in gross margins in first quarter 2022 is also because of the depreciation of Thai Baht against U.S. dollar. The Maxxcare business gross margins has been at 18.8% as compared to 16.8% last year. And the net profit, the net margins of Maxxcare business have been at 55.1% as against 51% last year. The gross margins of Maxxcare business are again influenced by the principal mix and service mix, amongst other factors. And similar to the branded business, there has been a slight improvement in the gross margins of Maxxcare business, which is driven by depreciation of Thai Baht to U.S. dollar. The overall SG&A has remained steady at 25.9% of the operating revenue in quarter 1 2022, as against 25.5% in quarter 1 2021. And the reported net profits have been at THB 613 million, reflecting a growth of 84.2%. Adjusted net profits, which are adjustments towards ForEx losses of new businesses, which are investments in the future and significant nonmaterial onetime income and expenses, our adjusted net profits have been at THB 635 million, reflecting a growth of 72.6%. So overall the profits have increased primarily because of the growth in the revenue of branded business and better segmental gross margins, which resulted in higher gross profits and higher net profits for first quarter 2022. We've spent around THB 130 million towards CapEx, which is the majority coming from our spending towards consolidation of manufacturing operations and capacity expansion in Thailand. And overall, we plan to launch per plan 23 unique formulations in FY 2022, 12 of them coming from nutra and 11 of them coming from prescription pharmaceuticals. With this, I would request Mr. Vivek to take us through the year 2022 and...

Thanks, Manoj. I hope you have got a flavor. You've already seen our MD&A and you have most of the information you need. I'm sure you're looking at a couple of things. Number one, Myanmar situation. Yes, Myanmar is in difficult situation. I'm sure they are also struggling with currency and things are going to get difficult in terms of imports, availability of foreign currency. But the good thing is, as we have mentioned, we are in the pharma business and a large part of our profitability and a large part of our business comes from medicines. And we hope that this will not be impacted as severely, and we should continue to deliver, at least, if not equal to what we did last year out of Myanmar. The growth that we had planned and things that we have planned for Myanmar is going to be difficult, especially in the distribution business, but let's wait and watch. We are still there, and we plan to remain there, and we keep our foot in Myanmar, stay fixed there because we have a long-term plan, and we have a double in 5 years plan in 2025, so that will still continue. So that's the story behind Myanmar. The other story that's emerging is Ukraine. Yes, there is war on, but the war is now largely in the Donbas area. I think Kyiv and the other areas are now more open and things are starting to move around [ Lviv ] and all where we also have some storage and warehouse and we are looking at moving stocks to move to Poland, and all that we are doing. So business is starting to move up in again, pharmacies are open, and we are supplying medicines. We are importing medicines. So we do hope to continue doing pharma business and Ukraine for us is largely pharmaceutical there. And though there will be some impact, but I think in the overall scenario, looking at the percentage of business that Ukraine contributes and the bottom line, it will be very nominal. So even if there is an impact. I mean Sri Lanka has some impact as well that is also contributing. But there is a problem, but we have -- we work on [ LCs ] in there and hopefully if some IMF and other things improve, we should see some improvements in Sri Lanka. So these are 2, 3 markets of concern. But having said that, being in the medicine business, things don't look that bad. And a lot of our other markets are performing far better than planned, especially Thailand, Vietnam, Malaysia and all our other markets are doing well and compensating for some of the minor impacts that we have from these 3 markets. So other than that, what about going forward? We still believe and we maintain our guidance of doubling our business in 2025 compared to 2019. We hope to get to that THB 2.5 billion mark in bottom line. We are very close there already, but that's the past that is COVID-related. So though we have a very good quarter, we still think that we want to wait and see how things look like in the ongoing quarters. So it's just not a one-time COVID impact because COVID is still there and people are still dosing products, which are related to immunity and keeping themselves safe from COVID. But at the same time, having said that, a lot of our products, not only the hospital business has come back and there's more footfall, so there's a growth in the pure, what we call, the pharmaceutical health care, pure prescription business has gone up. And across the range, it's not only vitamin C, vitamin D that we talk about is growing, a lot of other products that are not related to immunity have also shown good growth. So I think generally, wellness, well-being and people are looking up and looking at other health areas, herbal medicine and the whole range that Mega has: probiotics, medical nutrition, herbal medicine, all of them are seeing an improvement in sale. Though the COVID-related immunity products have also grown. So whatever impact that happened, we believe they will reach a new high and probably stay there. And that's the story behind our branded business. So with that in mind, we still think high single digits, around that single-digit growth is possible. We were looking at a flat year 2022, but in that mid- to high single-digit growth is potentially possible. That's what we are seeing based on the first quarter results. But we'll keep updating you every quarter how things go along. And so that you have a real picture and real feel of what's actually happening on the ground. So that's the story of what's going on forward. Manoj just mentioned, we plan to launch 23 new products in '22. We have 39 new products being launched over the period '21 and '22. So that should probably also help in our momentum in growth. And we have a strong pipeline of about 176 new products under development. So this should also help us in the next 5 years and going forward to grow our businesses in all areas. I mean a lot of them are in pure pharmaceutical, but as well as foods and food-related, plant-based foods and products in the plant-based area, which are also supplements and other products for adult, for mother, for children, for adult nutrition and over-the-counter drugs and new doses formed in drinks and liquid formats and sachet formats are also expected to come out in the years to come. So new initiatives you have heard. I think, in the past, you know that we have started the ESG initiative, though we practiced this for a very, very long time. We don't have -- not announced a lot of things that we do, but we've always had solar, we've always had, what you call, variable motors, LED lighting, water treatment facilities and reusing water, et cetera. And including single-use plastic, we use completely recyclable plastic in the company and most of our packaging only PP, but they're not multilayered plastics that we use. And the kind of work we are doing in every area to bring down reusability and working with sustainable ingredients. So that is something we do. We have a very good record with employees and teams, which have been with us for a long time. We have a very good mix of men to women ratios. And in terms of religion, cast, size, color, we have no discrimination policies across the world. We work in many, many developing countries. So I think we are already up there and now we are putting that into a well-documented process so that we can not only do that but make it a habit in the company, it's not about getting qualified or getting a certificate but also doing it regularly across the board in all the 3 areas: environmental, sustainability and governance. That's also put in -- the ball started to roll. And hopefully, we are very confident that by the end of this year, early next year, we should have the basic approvals and get ourself certified. In terms of CapEx, I think Manoj, already said, we do about $2 million, $3 million in regular maintenance work. And we have approximately THB 537 million approved in projects during '22-'23, right? So that's largely towards Thailand. We are rebuilding the facility. We had an old plant, it's in progress. We are hopeful later by fourth quarter, we should be ready in the new plant that we are building, including some new additional liquid lines and some other areas, we are trying to get into packaging improvement and debottlenecking the plant, so we can do more. We're putting up line that can increase capacity of both softgels and other formats, tablets, OSD facility as well. So that's working. Probably Indonesia, we also are starting -- going to start building additional area and -- to move 1 or 2 of our softgel lines there as well because we've just started hoping to get our registrations for softgel. We have about 3, 4 years before we have to start. So it takes about 3 years to build, install and then we have to start local manufacturing. So that's the plan. And we are working towards also starting that work in Indonesia. So that's our -- in terms of things, new initiative that we are working on. With COVID, I think a lot of concerns will remain what happens when COVID is endemic and people are not as concerned. And I think that's happening already in most places. I think people are getting normal, getting used to it. But over 2 years, they've been consuming some supplements and fortunately Mega being their choice partner, being a credible partner in this area, in the countries where we are and having done it for the last 30 years, there has been -- it's been good for us that people use our products, and they have built a relationship with us and we believe that this will continue. And they will not only the vitamin C and Ds which have a reason to continue and carry on, not only for COVID but for other reasons as well. So we hope a lot of these things will become a regular part of our business and maybe also flow over to other products that we do from cold and cough, Eugica to gut health, to pain management, where we have very phenomenal and fantastic products in the market. So a lot of things we had difficulties trying to educate. We probably will be able to do a lot more with our consumers. So that's likely probably that's about it. I think other than that, we have talked about every area, Myanmar, Ukraine, Sri Lanka. We've talked about our plans in the new CapEx that we are doing, COVID and impact on our business, new product pipeline. And then our new businesses that we started, I mean, I'm sure you'll be interested to know sometimes people want to know what proportion, how do we -- how does our business breakup come up in the brand business, which is Manoj just explained that our brand business has become about 50 -- 51%, 51-point-something percent this year -- this quarter, sorry. So it's grown. And that's the real reason why our profitability has shown great improvements; a, growth of that; b, because of some dollar to baht rate, which has also shown some proportional gains on our end -- 3%, 5% -- 4%, approximately. And the other also comes on capacity utilization when we produce more, our overheads remain the same. And so we see better, what you call, margins coming through the whole value chain. So those all things put together, improve our results. So if the branded business grows, I think we see better results. And this is an example of what's possible. And in spite of that, also, some of the cost structures are not -- have not grown as much and maybe spending also hasn't grown as much in the first quarter. Sometime we do spend in the good days would be on advertising on TV, et cetera, in the first quarter, but this quarter, maybe it's a little bit lower. So our gross margins have remained. And SG&A has also remained between steady, 25.8%, below. So generally, between 26% and 27% is towards the -- more towards the 27%, so a percentage point here and there as well because of SG&A. So all these are adding to improved margins improved profitability. Africa, yes, we do not share that information in detail. But yes, Africa is also doing well, growing. All markets in Africa are growing, and we still continue to believe and invest in Africa. That's our next future -- in the next 5 years' time, we see that has also become a sizable 20%, 30% contributor to our overall growth. Not that Southeast Asia is still the largest and will remain the largest as long as we are in this business. Indonesia after we took over the plant, we have now got up to registration. We have put a lot of products. I can't remember the exact breakup of how many we have done, but there are 20, 30 products with new drug registrations going on in Indonesia and some have already started to get approvals. So we should be launching them soon coming -- in the next coming few years. So as per plan 2030, we're looking at about $50 million. We think we should get there. And we are moving in the right direction in Indonesia, we should also -- hopefully, we should probably launch Gofen in Indonesia also some time in quarter 2, 2023, if approvals and all come through. CBD, everybody has a question what's Mega doing with CBD. We are still at that same situation. We have supply sources now that our partners are all now -- who are growing and extracting, there are a few plants in Thailand who are doing it. We are working with some of them. And we hope to have the ingredients available to do trial runs. And meanwhile, we are working with Thai FDA in terms of approval possibly. So if things go very well, -- let's assume by the quarter 2023, first or second quarter, we should have some products in the Thai market, high-quality CBD products made with special technology, which improves availability and probably has some benefits on human health. So we should be looking at launching them. We also launched [ Fah Tsai Joan ] in Thailand, our brand, ViruNo 60 and that's also been very, very successful. It's 3 capsules-a-day product we launched in the Thai market and that's also done well. And we're looking at also registering that across many of our other markets, as we go along. So that's the [ Fah Tsai Joan ] brand name, ViruNo, ViruNo 60 that's in the market. Our overall contribution, generally, our nutra business is about 62%, 65%; prescription drug, about 28%, 32%; and OTC, over-the-counter drug like Gofen 8% to 10%. So this quarter is somewhere there in that range. They're not very far away. So that's the general range. At the moment, that's the ratio hasn't changed very much, I think, going forward. But maybe in the next few years, by '25, the prescription drug business ratio could be slightly higher than what it is. It could be moving up anywhere between 35%, I think with the plans that we have in place. So the prescription business is that overall will probably become slightly bigger in the years to come. Other than that, Natural Health Food, Baby Natura, Dr. Drink. We've all consolidated under 1 company called Natural Health Foods. And now it's part of our whole branded strategy called Natural We Care like we have in Mega, we have prescription, we have consumer health, this is natural health care, so all natural products, plant-based products, no additives, vegan-related products and coming from plant origin, all natural are going to come under this. And this is going to be marketed online, offline and including in shops. So now we are building a portfolio and working towards it. And the business is growing. We have just launched it in Cambodia. We've just started to launch in Vietnam. Myanmar, due to restrictions, we are going to delay it. So I think we are adding this to our portfolio in many markets we are and slowly you'll see this also become one part of our product range. So that's the Natural We Care or Natural Health Food category, Baby Natura, Mom Natura, Dr. Drink, etc., products that come under Natural Health Foods. Wellness We Care, that's our social enterprise, and that's something that we are very proud of, and we are doing a lot of work there with Dr. Sant and his team there. We've got 2 doctors. We've got traditional medicine doctors there. So we've got a We Care Clinic, and we should also be able to describe CBD and herbal medicine there. We have an Ayurveda massage and physiotherapy training center, a great kitchen there, the We Care kitchen where we teach people how to cook and eat. And actually, we help people to reverse and prevent disease. And it's not only about pills, it's helping people along their journey, whether they have heart disease, diabetes, blood pressure, joint pain, back pain, all kinds of other gut health, so they come there, they learn and maybe do some lifestyle modifications, not only with pills, we also have the medicines that we sell but also connecting the consumer in their journey towards good health. And other than that, one of the most other important initiative is good health by yourself. And we are doing that for our employees across the world, 6,000 people. So starting at home. We're running a program for a long time now 3, 4 years, now we are doing more to improve our own employee health. And there's a lot of data around the world, you will find that shows that employee health not only result in better performance, better outcomes, less absenteeism, et cetera, good health. And beyond that, they remain healthier. Forget the savings the company probably makes on insurance and their absenteeism, but I think the real outcome is their own good health and the time they spend on medical treatments and looking after their families. They are not a burden to the society or to the government. So that's something that we honestly believe. And we spend, we have a wellness, what we call, the Mega Wellness Foundation, which actually spends about 2%, 2.5% of our income on social initiatives and help that we can do across countries where we work in. So this is part of that plan, it's a social enterprise, and we are proud to add and do a lot more things in this area. The other area that we're still working on health at home. We mentioned to you before the digital transformation, our We Care app. So we have developed, a lot of work is going on in that area. We're testing, some beta testing is going on in certain areas in diabetes, working with HCPs and patients and onboarding them, so they can keep record, track and consult with their doctors across the whole value chain. It's not an independent stand-alone app where we're trying to make money, we are offering it to people for improving their lives, helping the doctors in their patient relationships and Mega being a part of their whole journey is also participating in their wellness program. So that's the idea. So that's also work going on is work in progress. So far, April doing all right. I mean there's nothing to complain about. We've still done well. I can't give you any more details on how well we've done. So it's not shown yet signs of slowing down. Things are all right. And we still see that quarter 2 should be still good. We don't know much about 3 and 4 years, but quarter 2 should all be -- should still be fine. So that's all from my side. Ladies and gentlemen, I'm open -- we are all open to your questions. [Operator Instructions] Thank you very much. Open to you.

My name is Yuwanee, I'm from Maybank. Please, let me congratulate you for the excellent results. I have quite a few questions, 4 or 5, if I may. First one is your guidance is that single-digit growth for this year? Am I reading this correctly? Is this the overall growth or do you have the breakdown into branded and distribution?

Yes. So we still think the distribution business is not going to see much growth. It'll probably remain flattish anyway because of issues in Myanmar and that being our largest market, so we don't see that really growing, before we used to have a 10%-20% growth in consumer businesses, and that's not going to happen. So flat or a little bit lower 2%-3% in that range, but bottom line should be fine. The real growth will come from branded business. Now you take 50%, even if it grows a little bit higher, we still think -- and it's probably tapered down in second or third quarter. So we believe that single-digit 5% to 10%, higher single digit is a good aim. Looks like that. We have to wait and see. So that's our guidance based on some reasoning behind it that -- if that doesn't grow, it remains flat or goes down 2%, 3% the other side. But here, the other businesses grow even in double digit, you still average out at a higher single digit. That's what we think. But again, we could be proven wrong, but let's hope that's true. But we think getting to that high single digit there's a very good possibility.

So let me be more specific. If you say high single digit overall growth and your distribution is flat, it means that the branded probably grows in the region of 20%. Is that correct?

Well, you can make that imagination. I won't put numbers in my mouth, but I think high single digits could be 5, also could be 10, so 5 and above, right, 5 to 10. If you grow 10%, then yes, then the brand has to grow 20%. If it is 50-50, then it has to grow -- yes, your mathematics is right. But if it goes only 10, then the brand has to grow by 10% only, if we grow 5%. So let's see, we are in that range. We can't -- I'm not very good at forecasting. I don't have a crystal ball. But looking at the market and looking at the scenario and if some of those things that are going very high today in the second, third quarter drops, then there will be some correction. And we have to wait and see. Though I don't think we'll ever come back to the same level as 2019, but it is going to be a higher level, but it won't be at the peak that it is now. So if that also happens in the second -- in the third, fourth quarter, then overall, probably the total growth could be a little bit lower. But we had always said we'll be flattish and maybe in the range of 2%, 3%. But now we are -- based on this quarter's performance, we are saying higher 5% to 10%. So let's have a look and see how things go in the next quarter.

So second quarter, quarter-to-date, what kind of growth do you see for both branded and distribution?

I can't -- I'm sorry, I can't disclose that at the moment, it's only 1 month. Apologies, sorry, I couldn't -- I'm not in a position to say that, but I only told you that we are still doing well. We believe there is still growth. Things are still going well. That's all I can tell you. So it's not -- it's not a bad sign in the first month or so.

Okay. Next question on Thai Baht depreciation. If you -- let's say, if you take out that effect, the top line in the first quarter could have grown what? Less...

I don't know. I think what we have said is that there's a 4% impact on the bottom line. Thomas -- sorry, go ahead Thomas. Yes, go ahead.

Maybe I can take that. Yes. So on different businesses impact is different. So when it comes to brands, we think the revenue growth would have been lower by 8%. So we've grown some 30% to 33%, so it would have come to some 26%. On the distribution business, there is a ForEx impact. But last year, first quarter, there was some onetime business we did. So the last year's that onetime business, we adjust. Including the ForEx impact, I think we were flat. So same 8% impact on distribution business as well. It's on the top line. On the gross margins, I think, there is an impact of 2.5%. See, this is again, we are in 35 countries dealing with 35 different currencies, and there are a lot of cross movements happening with every currency. So this is not exact science, this is guestimation that we are doing, approximately 2.5% to the gross margin growth. So that's a summary of what you're looking for, I hope.

Okay. Next question is Myanmar. Do you think we sort of see flattish sales, but it kind of dipped in the fourth quarter, I believe. Do you think we have passed the bottom in Myanmar?

Very hard to predict, my lady. I think we have -- the first quarter was still good, branded business, pharmaceutical business is still good. If you can -- our products, as I mentioned many times before, the product that we do, product we distribute are 30 years old in the country. So they are well known, well established. And that consumer, we reach out to out of the 55 million people, it's probably 2 million, 3 million people in the country. That's our consumer subset. So our hope is that a lot of our business will stay. Nothing should happen as long as you can get products into the country. As long as that doesn't change very much if regulations and requirements don't change very much, we should continue to do business. Pharmaceutical should grow, also grow not only stay flat, should also show some growth. Consumer businesses, if there are restrictions, I mean the brand we have if they can get stocks and things like that, they should also probably grow, but if there are restrictions, then it could be a little bit more difficult. So it's a very flexible situation. But as I've mentioned that we do hope that in Myanmar -- we believe that we still deliver on the bottom line, but top line growth may be flattish. That's our view on Myanmar.

Okay. Next question. In the first quarter, in the branded business, what's the growth broad based? Did you see more growth in any particular country?

Thailand, Vietnam, Malaysia, very good growth. And most countries. Philippines, we had a good growth. So they are all plus and minus few percentage here and there, some a little bit higher, some are a little bit lower. But a lot of -- it's across the board. It's quite largely across the board, and Thailand is a very good performer, definitely. So is Vietnam. And so is Myanmar also in the branded business did well, not bad. They also did very well. Malaysia did very well as well. So Philippines did very well. So a lot of markets. I think it's across, very few markets haven't done well. Ukraine, you can discount out. You can take out Sri Lanka in terms of growth. They were doing very well last year. So that's a bit flattish. But other than that, most of our -- Africa has also done very well -- very well, yes.

Okay. Last question, the hemp business, when will you start that?

I explained to you that hemp is not in my hand. We don't do growth and we don't do extraction. But there are 2 parts to the hemp/CBD business. The extract that is made by companies who can make it to 0.2% THC and they could provide us the number 1, CBD, distillate, extraction, oil which is 0.2% THC at least. And there are different forms for your knowledge, isolate and distillates. Isolates are pure CBD and distillates are 60%, 35%, 50%, depends on -- so I think companies are getting ready, they are preparing, they are growing and they are experimenting. Hopefully, something in the next month or few months should be out in the market and they should be able to stabilize their processes. That's part one. The part 2 is our part to make a product. So once you have sample trials, we make a product, then we have to have an approval from the Thai FDA to approve the finished product. And there are still some challenges in that area. So looking at all this, we are aiming, as I mentioned, quarter 1, 2023 any food registration or herbal registration, if they are in that category, still takes 6 to 9 months. So our hope is by the second quarter '23, we should see something in the market, if not earlier. That's the present hope. Things change, we'll let you know. Thank you very much. Thank you, ma'am. Thank you. Thank you.

This is Leena from DBS. Congratulations as well on your great performance.

Thank you Leena. Thank you [indiscernible].

I also have like a few questions. First question is like a follow-up questions on sales. I'm not sure if you could please share more color on whether which product, in particular did relatively well between like nutraceutical, pharmaceutical and OTC in the first quarter, including which products like Nat C, Nat B and stuff, yes?

Very tough to answer this question. I declare on this call every product, what they did and growth will be a very detailed business secret. But I think there's growth I mentioned across the product range this time. It is not only one. Nat C has grown and vitamin Nat D has grown faster and ViruNo has grown faster. So they're all -- in countries where we sell vitamin, multivitamins have grown faster. So there's a whole range. We've got Mega range, we have in Eugica in Vietnam, which is a cold and cough product, and we have a mouth spray, so that does well there. We have Vitacap in Myanmar, it does very well there. We have Nat D, Nat B, and Nat C in Thailand, and that does well. We launched ViruNo 60 in Thailand, that did very well, which is Fah Tsai Joan. We have Nutrivita as a supplement, that did very well. So I think there's a lot of products across the whole spectrum, right, which have done very well in the last 3 months. And they were doing well before also, but they've just grown a lot more in this period. Other than the normal products also when we say other, has Gofen grown here ? Yes, that's also grown. As the pharmaceutical drugs also grown, there are a lot of drugs that we have. So there's not one single one that we have diabetic drug. And that depends on the tender that it becomes -- depends on supplies as well. So I think most of the business has grown, and some have grown more than the others, but most of the business has grown. It's across the board. It's not only saying 3 product, vitamin C has grown and become 10x, no. So it's a lot of products.

Okay. Was there any chance -- were there any like particular pent-up demand in the first quarter in your view?

Pent-up demand?

Yes. Yes, from like lockdown and all and COVID or anything? Just wondering.

I think it is base COVID-related demand because COVID grew in the first quarter. I think Omicron went across and people had COVID -- number of COVID cases probably, probably are the highest in this period now when compared 2 years before. So though it's not as severe and though people are now used to it. They just stay home and quarantine and do self-isolation. So there's a lot of things that have happened. Pharmacies give packs for COVID, government is dispensing packs from a number of items for people so they can stay home. Instead of giving favipiravir and other drugs. So I think people have used some COVID-related products, and there is an impact of that on it. But at the same time, some is also habit, some things they have also started to take regularly if they know that they -- there is still COVID around and you better build your immunity. So we also hope, as I mentioned, behaviorally, when you do something for 2 years, you probably continue some of these behaviors. So in some way, the wellness industry, the health industry -- as human beings as nature, if you have been through sickness, you've had COVID, you've experienced it, and you think that in another way, and I think this is very much common knowledge that being healthy helps you -- reduces the chances of having COVID and having severe disease, and it's known. There are a lot of scientific evidence for that. So I think there will be some -- there will be continuation. There will be a new high, but some of it will come down. And probably you'll see that -- I mean there's still COVID. So I think probably my feeling is that third and fourth quarter, you'll see some downward trend in some of the products. And some will remain higher than they were before. I mean I'm not saying pre-COVID days, so they'll come to a new high. That's why averaging out we said [ 25 ], we should get to [ 25 ], there's a very good likelihood that we will definitely get there.

And my last question is that given your gross profit margin level was so high in the first quarter, do you think this can be maintained throughout the year, given continuous supply chain issues and rising energy price?

Will it be maintained? No, I think it won't be. I think there will be some reduction. My feeling is that there will be some reduction in that. Not for other reasons also, I mean it's just a mathematics also, right? If sales come down and other expenses will grow up now start to creep up because some of it also advertising, travel, other things will go up. So it won't remain there, right? It won't remain...

I think the gross margins of 69% of branded business, which is mostly raw material and input costs, it will really depend on the planned capacity utilization and the product mix. So if we are able to maintain the momentum it may continue. But if the growth momentum comes down, which was like 26% normalized for ForEx, which it comes down to that extent it'll come down. So what is sustainable in the long term is that 63%, 62% to 65%, that is gross margins that we are comfortable with to sustain. And if you look at our last 20 years, you can see that we have been maintaining that. Thank you.

Yes. Likelihood is going to come down with that range. It is the 60 to 65 range. This is what probably remains there now. Things as you said supply chain, shipping costs, prices going up, all these things are happening. It's obvious. Now with Ukraine, with commodity prices. So we don't project 69%, it's happened. So generally, we projected 63% to 65%,right? So...

This is Pattadol from Thanachart. May I please ask more about brand in Q1. So in Q1, you made around THB 2 billion in brand, which is pretty high. So do you think if there were any specific reasons that caused such strong growth in brand [indiscernible] have you seen any stocking activity in [indiscernible] because people go back to hospital quite fast? And there would be any reasons that you don't think they will continue into Q2?

Personally, looking at the data that we have, we don't see stocking as a problem. I think there is the real demand. There is some information we have that we are also short in some areas because we didn't have enough stock in some areas. So it's not stocking up. We haven't raised prices. We haven't given information that next quarter on prices will go up, so people buy and keep more. We have made no such guidance. So it can't be because of price rising fears, availability fears. I think there is real demand, and there is movement of these certain products off the shelf. So I don't think stocking is an issue wherever the products are moving. If that answers your question, it doesn't seem to be that way. And there is no reason for them to stock. If there was a panic and shortage of stocks in the market, there could be. But fortunately, there is demand. We have stocks -- we have had stocks. I'm hoping that the disruption is not too long. I mean there are a lot of issues. China, China lockdown, containers sitting in China, supplies are affected, shipping, freight lines, supplies are affected, commodity prices, gas, wheat, sunflower oil, all these things out of Ukraine, a lot of these other commodity prices going up. So yes, there are issues. But -- having said that, if the supply chain moves and the products are available, if the prices go up and you've seen material cost in our business is about 27% in that range or even lower with more 20%, right, it is working at full capacity that plant, then -- the impact of price increase is also not very large, 1%, 2%, and some of this is transferable to the clients as well, some of it. So -- I mean, most people have raised prices. If you look around in most of the industries, it's been transferred to the consumer. So as and when that happens, we are confident that we could also do some bits of it and increase prices in certain areas. But other than that, the key supply chain as long as materials keep coming and doesn't have blockages and issues. That's a big challenge, I think, we need to see. So far, we've had a good year, last 2.5 years. We've had good stock. We've been able to supply products and having our own facilities, being able to manage production, supply and adjust our requirements very quickly. So that's also been good having the capacity available. Now we have to wait and see. So far, we are managing. We -- if something comes up and has a real disruption, we will let you know.

Yes. And my next question is about the COVID cases. The cases started to come down in Q2. So do you think we can see some soften sale in brand over the next few months?

Yes. I mentioned that already. I see, I think quarter 2 should be fine. Our feeling is quarter 2 still looks good, should be fine. And quarter 3, quarter 4, that's why we are saying it's going to come down. We're already telling you that, that is going to come down. That's why we are predicting between 5% to 10% single digits, above 5% to 10% growth rates. So our expectation is that it's going to come down. But it won't come down to 0, we always -- you already had a base. The base is around, if you look at '19 and '20 and '21 base, they've all gone up. Last year also, we were up. So it will probably come out at a base and stay at a new level, right, but it won't stay at the highest peak levels. It'll drop. People who come in for short-term, people who come in for to avoid the problem but people who also eat who were taking -- I say there are types of customers we have, a, who consume regularly; b, who consume not so regularly; c, don't consume. So now we've got nonregular consumers becoming more regular and new ones coming on board. And then out of the new one, there will be some drop out and some will stay. So if the more stay on because of the range and because the products that we have and the relationship we have and the Mega range of products for every area from cold, cough, allergy, pain, joint pain, eye health, brain health, heart health, so we have the whole works, the gut health. So we probably will have relationships with the consumer and build that business. Yes.

Yes. And my last question is for Khun Thomas. I'm not sure if I got this right, but you already mentioned about the impact of the weak baht on the gross margin. So in Q1, the weak baht helped the brand gross margin by 2%. I'm not sure if I got this right.

No, the gross -- overall combined gross margins had an impact of 2.5%. And I think probably you can -- it is equally coming from both sides, branded and distribution. That's why distribution also you saw an improvement in gross margins of 2% or something like that. And before we go on to the next question, this is -- we're getting into the last 10 minutes, and there are 2 questions on the chat that somebody has asked, that Khun [indiscernible]. The first question is will there be any upward revision on Mega's target of 2025 target. So I don't think we are going to revise that as yet. When we cross that fence, then we will think about it. Next question, maybe you can take, Khun Vivek. Lots of cash on balance sheet [indiscernible] plans on big capacity expansion behind the ones -- besides the ones in MD&A.

Nothing yet. Nothing yet. No revision. We've not done our new budgets. As I mentioned, we also believe that because what is COVID effect is only exception, but on a longer-term basis, after correction and we do it consistently, and you have seen we have grown the business consistently and bottom line. So in consistent terms, THB 2.5 billion still stand, if things change, we'll let you know. MD&A yes, cash on the bottom line, but we are not running around looking for acquisitions that don't look, make sense. They have to make sense, good sense. We bought Biolife. We bought Eugica, all of them have made sense so far. We bolted them on. We grew the business, and they've all done well for Mega. Now we are in the midst of doing what we're doing in Indonesia. That's very important. So we are putting money there. And also, we are also spending money on a lot of new products, product development including buying new products as well, licensing in a lot of products. There's a lot of plans in there. We've got 176 products, and we have to get more. We are working a lot on these things that we are doing at the moment. And anywhere in the plant, when we invest and whatever else we need to do, we have enough and more. We have a few more things to do in the plant here. looking at doing some expansion on solar area as well. There are some additional things we are doing, preparing ourselves for the next 5, 10 years, we should have enough capacity. And then some -- dosage forms, we are also studying. We haven't done work yet, but we are looking at new types of tablets and bilayered stuff. But those are not huge a couple of million dollar investment. They are not very huge. So we're evaluating all these things on an ongoing basis. But no MDA that's on the book. We haven't found anything that really fits into us so far. If something comes up, we will definitely -- and largely, as I told you, we try and look at product area. We have bought some products in the past in Ethiopia, we bought it in Myanmar, so if we get product portfolios or we get certain OTC brands, those are our key area that we're looking for, not manufacturing, not extractions, not raw materials, no finished products in country. In one where we have an operation, and we can add it along to our existing team. So there's nothing at the moment.

Okay. Time for a few questions. We got some 7, 8 minutes left.

Any more questions offline? Offline if they come whenever we can answer them, but anybody has more questions?

Yes. It's me again. I didn't quite catch your target for [ Fortamet ] in Indonesia. Can you please...

2030, $50 million, 2030.

2030.

1-0 -- 3-0, 3-0. Today, we're in '22, 8 years from now to register to expand THB 50 million -- $50 million, that's our internal target.

So $50 million?

Yes. For Indonesia to pick up a $50 million country between $40 million, $50 million country by 8 years, that's our plan.

How much is it now, I'm sorry, I...

About $5 million, $7 million, I think. About $7 million, $6 million to $7 million.

So if there are no more questions, maybe we can wind down.

Yes. So if there are no further questions, we wish to thank you all for being with us, supporting us and believing in us. We are continuing our journey on the path to build great brands, love marks, build products with a purpose, helping people to stay healthy as long as they live -- so we are doing a lot of work in relating and working with the consumer, and we hope our business will be -- not only benefit will be loved and actually, people will continue to use and consume our products of Mega We Care. So that's the future, and we are confident that we'll get there. So thank you once again. Have a good day, and we hope to see you again next quarter. Till we meet again, all the best. Thank you. [Foreign Language] I'm calling off.

Thank you very much.