Morepen Laboratories Limited (500288) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Morepen Laboratories Limited Q3 FY '25 Earnings Conference Call hosted by Motilal Oswal Financial Services Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Tushar Manudhane from Motilal Oswal Financial Services Limited. Thank you, and over to you, sir.

Thanks, Steve. A very good afternoon, and I welcome you all for 3Q FY '25 Earnings Call of Morepen Laboratories. From the management side, we have Mr. Sushil Suri, Chairman and Managing Director; Mr. Ajay Kumar Sharma, Chief Financial Officer; Mr. Vipul Kumar Srivastava, Company Secretary and Compliance Officer; and Mr. Nishant Jayesh Doshi, Vice President, Corporate Finance and Investor Relations. Over to you, Sushil sir, for the opening remarks.

Thank you, Tushar. Thank you very much. Good afternoon, everybody, and welcome to the Q1 -- Q3 investor call for Morepen Laboratories. So first of all, I would like to compliment the whole continuity of the team and continuity of the stakeholders who have been standing with us. And just to update you on our Q3 results, which have already been there on the stock exchanges, I hope many of you might have gone through it. So -- but I have the results in front of me, so I can quickly read about what are the key highlights. So the main highlight is that pharma industry has been going through difficult time internationally and in the domestic market also. But thankfully, as Morepen as a company, we have been doing pretty well. And for the 9 months together, our revenue has grown 6.5%, which is, again, I would say, modest revenue increase. But as we shared last time, our focus has been on increasing the profitability and focus on more profitable products. Our EBITDA margin for the 9 months have increased 21%, and profit before tax has gone up 39% and profit after tax has gone up 44%. So just to give you an idea, percentages are sometimes confusing. So our profit after tax, which is PAT, is INR 97.71 crores, it's almost INR 98 crores for 9 months. And just to give you a reference, last year, the full year profit was INR 96 crores. So in 9 months, we have a PAT which is more than the last full year profit. So that's how we have been trying to economize and optimize our operations. So that's broadly an overview of how the trend has been. 6.5% revenue increase, and revenue is now INR 1,359 crores and profit of INR 98 crores PAT. Quarter-on-quarter, there is a mild growth as compared to the last quarter. When you say September quarter, we are INR 442 crores -- INR 442.71 crores, while now it is INR 458 crores. So this is a nominal 3%, 4% increase. And EBITDA is also in the same range, INR 49 crores and INR 41 crores. But PAT, there is an [ effect ] because INR 34 crores PAT was there last year same quarter -- in September quarter. Now the PAT is INR 27 crores for this quarter. And earnings for the quarter is INR 0.49, but while earnings for the trailing 12 months, when you say 1 year from 1st January to 31st December, for the last 4 quarters, if you see, the EPS is INR 2.39, so which is on the targeted line. Of course, we are expecting an EPS of INR 2.5 for the year as a whole. So we have our TTM of INR 2.39, which is again very good. So overall, we are going towards a very positive outlook. And if we see now specifically quarter-on-quarter, that Q3 this year and Q3 last year, there's a 2% growth only, that growth is very nominal, INR 449 crores to INR 458 crores. And in the 9 months, the revenue has gone from INR 1,277 crores to INR 1,359 crores. So I won't say it's a great growth, but the growth is profitable. And we have been focusing on increasing our share and our footprints in the growth market. So particularly U.S. market is a little slow and you know the reasons. There have been multiple reasons in the U.S. market. Because of election year, because of unstability, we were not expecting many orders. But dear friend, particularly European market was a bit slow or I would say rather very slow since last 3, 4 years post-COVID. So for us at Morepen, European market has started coming up. And we have seen 55% jump in the revenue in the European market. So it is adding to the profitability. And the second main factor is the import from China. So of course, the Chinese prices have been going down for the last couple of years, which was impacting our profitability and overall efficiency because last year, we had to produce 40% more goods even to get the same turnover. So now the prices have started going up, so which is a good sign that the China was sitting on excess inventories. So I hope that they have exhausted their old inventories now. And now they have started raising the prices, which is a healthy sign that, okay, there is no -- there's a shortage of raw materials now. And of course, the market has not responded as yet. It may be 1-quarter transition that we may get an upside in the selling prices also. But we -- that's a good sign that, okay, we do not see much price drop anymore. This year also, the price drop was enough. But in 9 months' time, we had only 10% extra production as compared to last year. But in the previous year, full year, we had 40% extra production to even to get to 14% growth. So looks like that, okay, the price drop is halted. So because if the prices go down, so to get the same level of turnover, we don't get any growth. Even though technically we are growing in quantity, but in value terms, we don't get growth. And to produce more goods, we have to hire more people, there is more electricity, there are more overheads. So we always prefer that, for example, if this -- we are selling something at $150 and the price comes to, say, $80, we have to churn out double the machinery to get to the same volumes. So those are the 2 main updates that U.S. market is slow, European market is up and Chinese prices are stabilizing. These are -- we have kept it very simple in the presentation. So particularly talking about 2 pharma -- 2 business corridors, then we have a Pharma corridor and Medical Devices corridor. So Pharma was INR 335 crores in the quarter. And for the 9 months, Pharma is INR 966 crores, so a little short of INR 1,000 crores. So Pharma will be -- now we're expecting around INR 1,150 crores to INR 1,200 crores for the Pharma. And Medical Devices for the Q3 is INR 123 crores, but Medical Devices for 9 months is INR 394 crores. So maybe we add another INR 80 crores, INR 85 crores. So INR 470 crores, INR 475 crores is what we are expecting for the medical devices to close. And as we talked earlier that the share of Medical Devices in the overall PAT is increasing. Last year, it was 26%, now it has become 29% for the 9 months. And we hope that it will keep on increasing as we go forward because the rate of growth of Medical Devices may be higher than the rate of growth on the API business or the Pharma generic business. So friends, if we go further to separate to the dedicated segments, now specifically talking about the Medical Device segment. During the quarter, the Medical Device business has gone up 15% from INR 107 crores to INR 123 crores. So there is 15% growth in the Medical Devices business, while on a quarter-to-quarter, there is 15% growth for the 9 months. So the growth is 11%, from INR 354 crores last year, so it is INR 394 crores. So in the pharma -- in the medical space, you already know that, we have discussed multiple times, that more than 90%, 95% of the business comes from glucometers and BP monitors. So glucometers is around 78% of the revenue, and BP monitors is around 19% of the revenue, rest 4% is other products. So basically, 2 products, BP and gluco, they constitute the main business and which is more of a repeat business in glucometers. BP monitors also we have established our leadership in the market, and we get regular business in the BP also. Coming specifically to the individual products. If we talk of glucometers, so we have talked in the earlier quarterly presentations also that basically it's like a printer cartridge model. So we install the meters and then we sell the strips for the rest of the life of the meter. And sometimes the meters get faulty or some defects, so we replace the meters. So now we have a base of 1.35 crores meters in the market. Last year, March, it was 1.16 crores, now it is 1.35 crores. So it's 13.5 million meters in the market, which is our solid base. So we have 1.35 crore customers in a way. So they buy the strips regularly. So not -- everybody may not be buying, but against every meter there in the market, we are selling the strips on an average basis. So if we have 1.35 crore meters, so on an average, people buy 100 to 150 strips. So accordingly, the number of strips multiplied, we get around 40 crore, 45 crore strips in a year. Last year, we sold 36 crore strips. So now we have already sold 33 crores in 9 months. So meters -- the more meters we sell, the more strips we'll be able to sell. That's the model here. And then just to give you an exciting thing that till date, as company Morepen, your company has sold 187 crore strips in the market. 137 crore -- 187 crore individual tests have been sold. So much individual tests have been done. So I'm specifically giving these numbers in crores so we can understand that the population of India is 140 crores, and we have sold 187 crore strips. So this meter-strip ratio is very interesting. So for every meter we sell during any year, so for example, this year, we may sell around 25 lakh meters, so these 25 lakh meters, we'll end up selling 37 crore, 38 crore, up to 40 crore strips. So now coming to the BP monitors. BP monitor market has been doing pretty well. Last year, in the 9 months, we sold 8.5 lakh meters, 8.48 lakh. And this year, in 9 months, we have sold 9.5 lakh meters, so 1 lakh extra, 8.48 lakh versus 9.48 lakh. So last year, we had a revenue of INR 64 crores in the 9-months period. And now we have a revenue of INR 73.5 crores, so almost INR 9 crore growth in the revenue against 1 lakh meter extra sold. And here, in the BP monitor, earlier, we were not having enough profitability. And since we were importing a lot of stuff, now BP is 100% indigenized. We have all the injection molding done in-house. We have even the PCBs made in-house. We only import bare PCBs. We have SMT lines. We are making the circuit on our own. We are doing the chip mounting on our own. So we have improved on the cost also and the margins are also improving. So we have 6.65 million meters in the market already, so which is our installed base. So this installed base doesn't give us any regular revenue, but that also speaks the penetration of market. So we have penetrated the market enough that in case, for example, if we assume that, okay, total diabetic population is, say, 2 million -- 20 million people, out of 20 million people, 1/3 of the people are using our BP monitor. Now going specifically to the project updates. Since we shared in the last call that we had a QIP issue, a fundraise issue back in August, 6 months ago, so we have some fund -- CapEx commitment and working capital commitments. So we shared last time that we have 120,000 square feet facility, which is under construction, and it was almost ready last time. So around 70% of the construction has been finished. And we had told that it will be finished in Q3. So I'm happy to share that all the civil work of the medical device facility is complete, and we have shared the photographs in the presentation. So earlier, we were importing the LED screen, which is there on the top of the BP monitor and gluco monitor. Now we have set up a full plant. There's a 10,000 square feet facility, which has been put up especially for the screen printing. It's a highly sensitive and best-proof environment with all dehumidification and everything taken together. So we -- that facility has also been started in the new building. Then there is an expansion of BP monitor capacity, but that is happening in the existing building. So existing building, there was an overlap. So we had -- some space got vacated when we moved the screen printing into the new building. So now we have expanded the capacity of BP monitors also in the existing building. And while we did so, so we got some extra space in the existing facility where BP and gluco were made together. Now the gluco monitor capacity also would be expanded in the existing setup only. So the new facility will be used for the manufacturing of the strips and for our expansion of the injection molding machines. The new machine -- the new building will have around 20 injection molding machines extra. So we are going to move faster now since the building is ready. So this is the development on the CapEx side. And as we have been talking earlier, in the Medical Devices business, we are certainly growing and expanding in the Indian market, but the focus is now to grow on the export market. So the company is doing a lot of efforts for promoting the business in the international market. So we have started participating in the international exhibitions. So the team had visited MEDICA, Germany in November '24. And there was a good response for different kind of products, including ortho and contract manufacturing and, of course, some technology updates also available. Then our team was available in Arab Health in Dubai around this 26th January, so during those dates, 27th, 28th January. So this was there for 4, 5 days. So I also had a chance to visit that exhibition. So we are seeing a lot of opportunities coming up for various products and various markets. Of course, by name, it's called Arab Health. So Middle East is already there. So we already have a product launch in Qatar, then we have launched our product in Oman, then other markets like Saudi or even the neighboring market like Turkey, even African markets. So people are approaching us. So other than that, we are seeing good response even from the regulated markets like U.S. and Europe. So Arab Health was a very good success this time. And then our teams are visiting -- we shared earlier that we already have launched the products in Thailand, in Bangkok. So our team is visiting in the next coming week to Thailand, and we are opening a branded store there and only for the medical devices. So of course, the local distributor will be operating that. So basically, like you see, there's a company store, so we want to open a company store in Bangkok to make a so-called a grand presence there also. So we are seeing a good response because people understand that's an imported brand. So that's happening on the Medical Devices side on the marketing side. Other than the marketing as well, you understand that today, the world is changing from a physical world to the digital world. So as a part of the digital journey and to have a digital database of your health, and we have launched an app called Sync, Dr. Morepen - Sync. Through this app, you can sync your data of health, whether it is BP or glucose or maybe weight, everything you can manage and you can sync on this app. So you can feed the data through your keyboard or you can scan it directly from the meter. Or if you don't want to scan, you don't want to type, so you can even speak also. So basically, it's a very simple app. It just records your reading and start making a graph. So after 2 days, 3 days, 5 days, you start seeing the graph and then you realize that your BP is going up or your sugar is going down. And of course, at a certain level, it will start giving you alerts if your numbers are going too high or too low. And of course, it will give you guidance regarding what to eat and how to cook your food and all that stuff, that's though common. But more important is that you get a track of your health in the -- right in your palm. And we are trying to avoid any further documentation. And even if you can -- want to store your doctor's report, you can do that. So that's a good start of the journey. And this is basically a precursor for the Bluetooth model. So when we have a Bluetooth model, so through that Bluetooth, so your phone can automatically pick up the data. But till the time people get used to the Bluetooth, so we are saying, okay, the app is already there, you can feed it manually. Even if you don't want to switch on Bluetooth, it's okay, you can feed it manually. But if it's Bluetooth, then the data will automatically come to the graph. It will automatically come to the app. So that's a digital move which we have done lately. Sync is the name of the app. You can just search it, Dr. Morepen - Sync, you'll find that. So friends, that was about the most, I would say, happening business, which is our Medical Devices. Now coming to our main bread and butter, which is Pharma. So Pharma Business, as we shared that Q3 to Q3, it was almost flat, INR 341 crores, INR 333 crores, INR 5 crores, INR 6 crores up and down. But on a quarterly basis, in 9 months, so it is up 5%, so which is not a big jump as compared to Medical Devices around 15%, 5% growth in the revenue. And particularly for export business, as we shared that there's a 10% increase in the exports. So particularly, I would say, contribution -- primarily contribution coming from Europe market from INR 455 crores to INR 500 crores exports in 9 months. But INR 500 crores export in 9 months itself is a landmark. So we never had a INR 500 crore export in 9 months. So this itself is the highest ever in the Morepen history that in 9 months we have done INR 500 crores. We'll be easily crossing INR 650 crores to INR 700 crores exports. So no need to mention that exports have higher margin. And thanks to the increasing dollar price and I don't want to say depreciating rupee, but increasing dollar value, so we are getting better realization for our exports, though we have impact on the import also, but our imports are lower and our exports are higher. So we are a net gainer while we do the exports and whenever there is a rupee depreciation. So in Pharma itself, even though we are saying that in general, there has been -- the numbers have been very nominal. But if we go to a little breakup for the 9 months revenue, so API business has grown 6% -- sorry, the API business has grown 3% -- 3.6% in 9 months, while the Rx and OTC business has grown 8%. So the growth in the consumer front business is still high. So we are seeing that there is a pressure in the B2B. So B2B, there is a pressure because of the China factor. So China had been very aggressive in the price movement. Sometimes the price is very low. Now they have started raising the prices. So the customers are hesitant to keep the high inventories. During COVID times, if you remember, the people were buying left, right and center. People wanted to build inventories. Now when the prices are falling, so customers do not want to build so much of inventories, so they are shy of keeping high stocks. So that is why our inventories are going down and consumption is going down and people are not stocking much. But we are seeing that, okay, now China has increased the prices. So hopefully, things should start reversing. So another interesting factor is that despite the increase in the -- despite the decrease in the prices, our sale has not decreased, revenue has not decreased because we had sold 11% more quantity. Last year, in the 9 months, we have sold INR 307 crores -- 307 tons of material, 307 MT, metric ton. And in this 9 months, we have sold 341 tons. So there's 11% more quantity sold. Because of this, we are getting a growth of only 3.6% even though our quantity sold is very high. Coming specifically to the products, and we have been highlighting and it is just to repeat that our 6 products are lead products. And we are exporters of the 6 products: Loratadine, Desloratadine, Montelukast, Atorvastatin, Rosuvastatin, Fexofenadine. So 4 products are anti-allergic: Lorata, Deslorata, Montelukast and Fexofenadine; then 2 are statin, which are for cholesterol. So all these products, we are #1 exporter out of India in terms of quantitative. Loratadine, we have got 81% share; and Desloratadine, we have got 66% share; Montelukast, we have got 77% share; and then rest of the 3 products, Atorvastatin, Rosuvastatin and Fexofenadine, we have got 30% market share. We are top of the pack when it comes to quantity of exports out of India. So we continue maintaining that leadership. And all these 6 products taken together, this contributes around 88 -- 87% to 88% of the business and rest 12% businesses are the new molecules, which share is increasing. It was 10% earlier, it has gone to 12.4%, so 2.5% share of the new molecules has increased. Going forward, the share of the new molecules will keep on increasing, and these growths -- there may be nominal growth in the case of Loratadine, Desloratadine, et cetera, and even Montelukast. Montelukast is sold in India more, so we are purposely trying to keep a tab on it. We are trying to supply less quantities in the domestic market because it's not very profitable. So after that, coming specifically to the markets which we serve and 80 countries we have been serving and, of course, the number of countries might have gone to 82, 83, but sometimes in some countries, we have not supplied since last 2, 3 years. So we always say let's take a ballpark figure and we don't need to say 81, 82, 83 and sometime in the next year, next time, we say 82. So it's broadly 80 countries. And with all the given inputs of the markets and all the pressures in the market, we have been able to maintain our 70:30 ratio of export versus domestic. So this quarter also and the 9 months also, our domestic turnover is around 30% and 70% is export. So long as we maintain 70% export ratio, so profitability is intact. Now coming specifically to the continent-wise performance. As I shared earlier that U.S. market was a bit slow because of the political situation and because of 100 other reasons they may have. So U.S. market is 14% down. And of course, we don't know how the next quarter comes up. Maybe we end up having a flat sale in U.S. But so far, in the 9 months, INR 119 crores, it was INR 102 crores, 14% down. The European market, as I shared earlier, was 55%, up from INR 97 crores to INR 151 crores. And India market as a part of the strategy, we are keeping a little low from INR 216 crores to INR 202 crores -- INR 204 crores. So it's almost 5% down. Asia Pacific market was almost flat, INR 178 crores, INR 177 crores. South America market was again flat, INR 30 crores each. So here, if we say these are the 5 major markets, U.S. is 15%, Europe is 22%, India is 30%, APAC is 26%, South America is 4%. And then after that, we have South Africa, it's a small market. So I know time is short, but I'll give you a quick update on the projects which are there for the API. In API, last time we shared that P-8 plant wherein we were doing expansion, the civil work had started. Now the civil work is complete, machineries have been installed. And a day before yesterday, I mean on Tuesday, the plant was inaugurated. There has been Pooja, and additional capacity of 60 kiloliters have been installed. 6 big reactors and 2 additional small reactors have been installed. So one plant is fully commercial and capacities have been added. Then the construction has started in the P-9 block. Basically, there are 3 blocks which are next to each other, P-8, P-9, P-10. So we didn't start everything together. We said, okay, we'll do one by one. So one block is complete. P-9 is smaller one, it will act much faster. Then we'll go for the expansion of the P-10. So against the 600-kiloliter capacity, which is planned, 510 KL is already complete and ready for production. And slowly, slowly, within next 6 months' time, so we'll have all the 600 KL ready for execution. So that's an update on the project side. So then, of course, there have been some addition of QC labs, bought many new HPLCs, bought many new GCs and other digital equipment which are more in the requirements. Then as we talked about in the medical devices, in API, we already have a lot of exports and we have to travel and visit. We are present in 80 countries. So we have to visit most of the countries, our sales team visits. But other than the visit, our team also goes for exhibitions abroad. So we have a -- had a big conference in CPHI Milan where our team had visited, and that was month of October, November during Diwali time, pre-Diwali. And then there was CPHI in India, Noida, this was in November. And there was a CPHI in China. Other than this, there are small exhibitions which keep on happening where team members go, whether Russia or Egypt or other small countries, but CPHI Milan is the main. So here again, we see that a lot of traction comes, a lot of customer visits are there. And we are seeing a lot of new opportunities coming up. Other than what API we are doing, we are seeing a big traction for the formulation or the finished dosages. So we are focusing our efforts on creating new finished dosage, new line of finished dosages and also an opportunity for the contract manufacturing. So in the next coming 5 years, we'll see a lot of new opportunities being already engraved in our strategy. And we see that a lot coming not only on the API, but a lot would be coming on the CDMO side, a lot would be coming on the finished dosage side also. So then, on the pharma side, we have -- of course, there's an OTC and there's a pharma and the OTC, we have a beautiful light news. We had launched a product, LightLife, which is for the weight management. And it's a big category, $23 billion category. We have launched 2 products here. One is a pre-meal drink, which is like a sachet, you just take 0.5 hour before the meal. And then there's a meal on the go. So on-the-go meal is like a full meal. It's like more like a protein shake, chocolate flavored and cookies flavored. So that you can take in the evening so that if you want to miss the dinner or you have been traveling and not able to eat around, so you take that product, so that makes your tummy full, so you won't be doing extra snacking. So here, friends, the advantage and uniqueness of this product is that the ingredients are patented. So there is a Bioslim (sic) [ Slimbiome ] from U.K., so who has a patented formula, who have been supplying, they have been doing it in the U.S. And they have given us this technology, patented technology. So we are adding that patented powder, so that helps in weight reduction. So then another is formulation from the Intelicaps. Intelicaps is again a patented technology for the probiotics. So there's a patented probiotic, which takes care of your gut health, and there's a patented weight-loss formula. So these, coupled together, so this is a good success, and it was launched just in December. So next quarter, we'll update you with the numbers also, that how is the response. So mostly in the new year period, people make these so-called fancy resolutions. But it's known that most of the weight-loss exercises happen in the summer period, so when people are more free to exercise and jogging and walk and running. So we'll come to you about the response of the product. So Farah Khan has been retained as a brand ambassador, and she is doing a great job on the OTC products. Then coming to the Rx products, we have launched 2 more products in Rx: Ticapen, which is a ticagrelor, which is anti-platelet, like blood thinners that is used in the time of heart attack and strokes, it is used mostly in the hospitals; and UDCA, which is our brand name is UdoFix. So this is also used for liver health. So most of the people with digestion problem, so they are given UDCA. There's a big demand of this product in the government sector also. Even the Jan Aushadhi, also they buy this product. So market needs this product. This is a natural product, again, very safe. So 2 new product launches: UdoFix is in 300 mg and 500 -- 300 mg and 150 mg. Then, of course, friends, we have been working on the various platforms. So many times, our team get motivated through various awards, particularly on the operational front. So our CEO, Anubhav Suri, who is heading the Medical Devices, he got a Visionary Entrepreneur Award for 2024 for the new age technologies and the new age production facilities in the medical devices. Then our supply chain team got selected for the top 50 supply chain and logistics companies, looking at the kind of distribution, the kind of supply chain we have and, more importantly, was the digitization what we had been able to do. So our Dr. Morepen team got a brand icon for 2024. And of course, you all know that we have got an iconic brand, Burnol, which is next to, I would say impossible to forget, so much closely related to the burn. If you talk of burn, it's Burnol. So we have an iconic brand. But based on our old study, they made Dr. Morepen an iconic brand on the basis of the study they did in Burnol. So that's broadly on the business side. Then we have been doing a lot of efforts for the industry interaction. So we have a monthly chat show. We have done 32 episodes of the chat show so far. The name is Bubble Chat. So Bubble Chat, we just completed Season 2 in December, and Season 3 just started. So just to name a few, we had Dr. Ram Charan on the chat show, we have Mr. Shiv Khera, Dr. Praveen Gupta, Mr. Kush Kapoor, Mrs. Shalu Suri and, of course, Lt. Rita Gangwani, Mr. D. K. Bakshi, Brahma Kumari Sarita Didi, then Ankur Behl, Dr. Bharghav. So basically, we call people from the industry to interact with the team. So other than the desk work, they are exposed to the industry, whether the hospitals or doctors or motivational speakers or speaking of AI or speaking of technology. So we keep our people. We just completed one season, so just little off the track. Now to sum up, let's conclude on the numbers and then I'll leave it open for the questions. So as we talked on the quarterly basis, revenue is up 2%. And on a quarterly basis, EBITDA is down 24%. And EBITDA percentage, 12% was there last year. And this quarter, EBITDA is 9.05%. But if we talk of 9-months basis, so 9-month basis, our gross revenue is up 6.52%. EBITDA is up 21%, and our 9-months EBITDA margin is 10.71%, which is up almost 10% from the last year same month. So EBITDA numbers are good. And now specifically talking of profit after tax, as I shared earlier that profit after tax is 44% up as compared to our last year's same numbers. And earnings per share is INR 2.39 for the trailing 12 months from January '24 to December '24, 9 months. So our -- for 12 months, January to December 12 months, earnings per share is INR 2.39. So that's all coming from operations side and my side, and I'll be able to take a few questions. We still have 20 minutes left. But overall growth is that, okay, pharma had been a strong pillar of the economy and the country is poised to make a hub for the pharma. There are monthly, quarterly ups and downs, which is okay because so long as demand is there, we are okay. So we can always beat the market. These -- problems do come, problems do go, but we are seeing good opportunity ahead. Thank you very much, friends. Tushar, over to you.

Steve, yes, you can open the floor for Q&A.

[Operator Instructions] The first question is from the line of Shaurya Punyani from Arjav Partners.

Sir, just a clarification. So you said you had 510 KL capacity for APIs, and you are planning to add another 600. Am I -- is it right?

No. 600 is the total planned as per the QIP document. So we'll be adding 90 more.

And in 6 months, you had said, right?

Yes. That's already planned, but the civil work is going. So within 6 months, we'll be completing, maybe 6 to 9 months maximum.

Okay. And sir, what are targets to -- like in terms of top line, in terms of FY '25 and '26, like what kind of growth are we expecting?

Look, depending on the market where it is today, so we are seeing 10% to 15% growth. But overall, we are expecting -- we have been growing at 17% to 18% growth CAGR. So depending on how the markets open up, if China markets stabilize and prices go up, so the growth may be high. But otherwise, 10% to 15% is what bare minimum we are expecting.

And margins should improve, right? You are saying the medical devices...

Yes, that's right. That's right. That whole focus of the company that we should focus more on increasing volume -- more on increasing the margins than increasing the volume. You would appreciate that 60% of the business, which is API business, that is B2B. In B2B, we have always to manage the pricing. We just can't keep on reducing prices because [Foreign Language] unending. So we have to hold the prices. That's why we stopped selling in the domestic market because the market is very competitive -- I won't say competitive, rather very demanding. So it's better to stay away and focus on the exports.

The next question is from the line of Dhaval Jain from Sequent Investments.

Sir, what is the main reason for the depressed margin in this quarter, if you can explain us?

There are 2 specific reasons. Of course, CFO Ajay is in the call, he can explain. But broader level is that the prices of the raw materials have started increasing, and the prices of the finished products have not increased. So the margin has temporarily been reduced because the market has not responded to the increase in the prices. That's one reason. Second is that when the prices were down, so of course, we had to produce more. So our operational expenses are high. Our production has gone up 11%. So that 11% expenses have gone up, but sales utilization hasn't improved because the prices were down. So in a way, there's a decrease in gross margins.

Sorry, sir?

I couldn't hear you. Please go ahead.

I'm saying this margin which has gone down is mainly pertaining to the Medical Devices business?

No, no, only for the API, only for the API. Medical devices is doing good. Medical devices, formulation, everything is good; only in B2B business.

Okay. And sir, if we see 9 months FY '24 to 9 months FY '25, Pharma Business has grown only 5%. Can you give us some guidance, how do you expect this business to grow in the next 1 to 2 years? Because apparently...

Yes. So then basically, it all depends on the products. So basically, we have got 6, 7 products which are sort of saturated. So the moment we keep on adding new products, for example, next year, now in March only, empagliflozin patent is expiring. Next year, a few more products are expiring. So Sitagliptin expired in India last year. Sitagliptin patent expiry is happening all over the world next '26 and '27. So basically, we have around 40 products where the patent expiries are lined up in the next 3 to 5 years. So more growth will come from the new products which are under patent now. That is one. And second, of course, the major growth would come from the finished dosage side, which I don't want to say that will add to API. But we are seeing lots and lots of people are looking for finished dosages from India. So while we are trying to sell API, so API, our value addition is limited. If I convert that API into formulation, so I got 10x revenue. Of course, I have to do a little more effort to convert it and to get approval. So if, for example, our finished dosage, the API cost is only 10%. Instead of selling API for $100, if I make a formulation, it will sell for $1,000. So that's where our margins will come and the revenue will come.

So sir, what sort of formulation business numbers do you see in FY '26?

Formulation business, formulation and OTC taken together is around INR 300 crores. So we are seeing at least a growth of 25% there.

In the formulation business?

Formulation and OTC taken together.

Okay, sir. So full year guidance for next year, should we look at 12% EBITDA margins?

Our EBITDA margin, I would say, between 10% to 11% because now it is 10.72% for 9 months. So I would say 11% to 12%.

Sir, even if the formulation business goes up, the margins will still remain there?

Then initially, I think for 1 or 2 years when the numbers are small, I don't see because formally -- as in today, if we see INR 252 crores in the 9 months, Rx and OTC, so -- but still the major thing is coming from API only. But you're right, maybe up to 12% we can assume once the formulation business also goes up.

The next question is from the line of Rajesh Jain from RK Capital.

I have a question on your Medical Devices business. You have incorporated a new subsidiary where the promoters have a 20% stake. So will the promoters be putting in money? And if yes, how much money you will be putting in? That's my question.

I would say it's an intelligent question, but you have understood very clearly, when you say 20-80, basically, the company has been incorporated in a way that, okay, promoters and -- they both have to contribute equally. So if promoters do not contribute, their share will go down. If company do not contribute, company share will go down. But we have put up a condition in the shareholder agreement that Morepen share cannot be reduced. So even if promoters do not contribute, promoter share will go down. Basically, now since we have to buy an asset into this company from Morepen, Morepen is coming up with the hiring of plan. So this company has to pay for it. So we need to have a capital base. So it all depends on how -- what are the terms of the BTA. So -- but of course, promoters will have to pay for it.

Okay. The second question is on your guidance that you have answered to the previous participants. But if I remember correctly, did you not guide for around 20% CAGR over the next few years, FY '26, FY '27 on a blended basis, considering all your businesses of Medical Devices, API and Pharma? So was the earlier guidance not of 20% CAGR growth, earlier on?

We maintained that. That's a CAGR, that's over a period of long term. But I think Dhaval had asked specifically for '25-'26.

Okay. So you're saying that the growth will ramp up over a period of time. Initially, it will start slow in the range...

That's right, because now we are putting up additional machineries, we are installing plants for finished dosage, we are increasing capacity of medical devices. So once everything comes, and as we shared in our earlier call that devices export will start in 2 to 3 years, finished dosage export will start. So then the numbers will be multiple, but I always say that we have to take an average. In 1 year, we have grown 40%, but that doesn't mean every year we'll grow 40%. So CAGR would be 20%, which we stand by.

Okay. And how many new glucometer customers you have added in this quarter?

In this quarter, I don't have a quarter number. I have a 9-months number, but I can quickly search it. Ajay, do you have the number with you?

Yes. For the quarter, we have sold...

New glucometers, right?

Yes, glucometers, we have sold 13 lakh -- 12.7...

Sorry?

12.74 lakh for the 9 months. For the quarter, it is...

No, for 9 months, it's 9.48 lakhs.

6.42 lakhs for the quarter.

Sir, I could not hear you. Again?

For the quarter, it is 6.42 lakh meter.

For 9 months, it is 9.48 lakh -- no, [indiscernible], yes, sorry.

No, for quarter third, it's 6.42 lakhs; for the 9 months, it is 24.29 lakhs.

Okay. And sir, the last thing is, in the results, I could not find the cash flow statement. So have you not published it? Or am I looking at -- because there are 2, 3 filings, I've gone through only one of the filings. So cash flow statement...

That filing is 6 monthly.

September and March, usually, there's a detailed one that we have ratios and everything. Honestly, Rajesh, I was also checking that I don't see ratios. Basically, the ratios are built only when balance sheet is published. Balance sheet is published only in 6 monthly results, September and March.

The next question is from the line of Rupesh Tatiya from Intelsense Capital.

My first question is, sir, this 9 monthly selling and distribution expenses, they are INR 75 crores. Would you be able to give a split between how much we spent on Medical Devices and how much on the Rx plus OTC formulation business?

Whether you have it or you have consolidated, but Medical Devices, there's nothing much other than some TV advertisement of -- that we had the KBC in this period. Other than that, there isn't much. So -- but selling distribution, Rupesh, includes our distribution channel, C&F commission, freight inward, freight outward -- not inward, but basically freight outwards. Selling and distribution is not only marketing.

So roughly can you give a split, sir, how, I mean...

Ajay, you have the numbers with you?

Yes. For quarter 3 for devices business, we have INR 8 crores of selling and distribution.

Quarter 3, the number I see is INR 19.27 crores, sir.

Yes. So that -- yes, INR 8 crores is devices and INR 7 crores is for API and rest for OTC and formulation.

API, there is an exhibition...

Entire -- sorry, can you give me entire 9 months? Because the number is down quarter-on-quarter. It was INR 32 crores roughly last year Q3, and now it is only INR 19 crores. Q3 is not representative. Maybe you can give me for 9 months, sir, INR 75 crores...

You have the 9-month detail?

Yes, we have 9 months as well. For 9 months for devices, that is INR 28 crores; and for API, it is INR 21 crores. Rest is for...

Okay. That INR 28 crores plus INR 22 crores, that is around INR 50 crores. Where is the rest INR 25 crores?

Yes, rest is formulation and OTC.

Rest is formulation and OTC.

INR 50 crores is medical and INR 25 crores is API?

API plus the devices together is INR 50 crores, rest is for formulation and OTC.

Okay. Okay, I got it, sir. And then can you also give the strips revenue for this quarter, sir? Out of this INR 123 crores in medical, how much is the strips revenue?

Strips revenue for this quarter is INR 73 crores.

Okay, okay. And then, sir, you have -- last question from my side. You have given this 15% margin guidance over the long term. So can you maybe tell me what are the top 3 things that have to happen for us to reach that 15% range?

Broadly, Rupesh, we are going forward for more consumer front business. And we are -- our further growth plan, I'm not saying we are reducing our focus on API, but our growth plan will be more towards finished dosages where the gross margins are higher to the tune of maybe 20%, 25% EBITDA margin. But even if I assume 20%, now we are at 12%, so average will increase. The finished dosage focus both in domestic also and export also. In domestic, of course, it will be a bit slow, but in export, as we shared in our last report that we have established a full-fledged facility, which is up to international standards. So that facility is already operational. The 2 new product launches are coming from that facility only. So that is one focus. And second was the export of the medical devices. So medical devices export also may start in 12 months' time or 18 months' time. So there also, we are seeing large volume also and increase in the profitability also. So in both angles, there is more focus on the consumer front business and export business. And we are trying to reduce our exposure to the traditional APIs, where which is we'd get too much large volumes, but we do not get good profit margins.

The next question is from the line of Subrata Sarkar from Mount Intra Finance.

Sir, my question is from the -- exclusively on the medical device side. So our medical device growth is quite muted basically. So my question is, is it because the industry growth rate has slowed down or we are not being able to ramp up because of our capacity constraint? Because already one of the major players in this BP machine, they are supposed to be out of the market. So that should create bigger opportunity for the existing player. So can you highlight this area?

Yes, Mr. Sarkar, you rightly guessed that, okay, in case one of the player has gone out, so opportunity should be much bigger. But I would say there is already inventory in the market. But the major point is that the demand had been slow, though in the first quarter we had a problem of capacity. So we were -- even though demand was there, we were not able to service. But now capacity constraint has been done because our new lines have been laid and we are fully ready with the capacities. So usually, this third quarter, third quarter and fourth quarter a bit slow in the medical devices. But no doubt, as compared to last year's same quarter, we have grown 15%. The only point is that, that's what I was telling earlier that every year, we cannot grow 30%, 40%. So sometimes we have to do market corrections. So I don't think 15% growth is less. In Q3, we have grown 15% in terms of the new installation of meters and new strips sold. But here, you would see that the whole game is that, okay, we are installing new meters. And those new meters will yield new strips anyways. Even if I do not do any advertisement, if somebody has bought a meter, he'll buy the strips. So basically, it's a very simple strategy. We keep on planting more and more machines in the market. The more machines we keep, more sales will keep on coming. So we are very happy. And our ratio is that, okay, how many meters we have sold and how many strips we have sold. So that ratio is increasing. That ratio till last year was 150 per meter sold during the year and the number of strips sold. So this is very high by now, but we'll see at the end of the year what is the average. It's more than 150, that gone up to 165, 167. So we are okay with the growth part. But going forward, we always see that, okay, if the markets are better, if the customer has more money, the customer is buying, only then we try to push schemes. We do not unnecessarily try to trigger the market if the market environment is low because we sell an advanced payment. [Foreign Language] So we better stay put.

Got it, sir. Sir, on the consumer medical device side basically, apart from these 2 products, sir, do we foresee any big opportunity in terms of revenue? Any other product that is comparable to this? And what is our strategy? Do we have plan to get into those devices basically?

Yes, Mr. Sarkar, other than this, the major product what we see is this ortho supports wherein we have ortho support for your neck, for knee, joint pains. So wherein there are -- now we have simple models that in the coming time, we'll have some heating pads also. Earlier, we had heating pads were imported. So in the ortho support, now the country is going for so-called sports revolution and the kids are playing in the open. So we are seeing a lot of traction in the ortho. And more important than India, we are seeing a lot of export opportunities also. I don't know if you have heard of a brand Tynor. That's already like a INR 400 crore brand. INR 400 crore brand only on ortho. So that's a big segment which we are working.

But sir, that requires a totally different kind of a setup and manufacturing facility. So do we have any plan to diversify it into those areas?

No, we already have it. We have the product. We have the factory. We have manufacturing. In our last presentation, if you see, so we had shared the pictures of the plant also. So we have an ortho manufacturing facility. In our Arab Health exhibition in Dubai this time, there were a lot of queries on ortho. Basically, ortho is such line that anybody can have it, and it has lesser medical or regulatory challenges. In BP and gluco, there are regulatory challenges because you're dealing with the blood. You're entering the blood of the person, you are invasive or non-invasive. But in products like ortho, these are only health and service. These are only support systems. So we are seeing a lot of opportunities. Other than that, weighing scale is there and, of course, thermometers, but those are not -- those can't be big categories.

Yes, sir. So from a big category or revenue perspective, ortho can be a big opportunity, you think so?

Ortho is, on the table, it's a big opportunity. But as a company, we are very clear that so long as I keep making money in gluco and BPs and I can expand geographically instead of doing vertically slicing, if I can grow horizontally and I can keep on growing more into by having better geographies, I'm okay. But sometimes in business, it's not that I want to sell BP monitor and I will not talk about gluco monitor. Sometimes you have to have a basket. You never know what customer comes up with. And I shared this example earlier that we were talking to one of the U.S. big chain. So we were discussing about BP monitor, but they say, can you give me a massager? So customer [Foreign Language] we don't know. So if the customer wants a massager, okay, we'll make a massager for you. I have the machines, I have the assembly line, we have got the injection molding, we have got the digitization, we got everything.

Okay. Okay. Sir, last question. Sir, from a -- like since you are a long time into this area, so have you done any estimate, sir, what can be the potential market for India for BP and glucometer? And what is the penetration percentage as per your... [Technical Difficulty]

Hello?

Hello?

Yes. Yes, please.

Yes. Sir, I was saying like have you -- sir, can you throw some light on this? Like what is the total size of the market for BP and gluco, means what is the penetration percentage and how much can it grow, sir, from an India's perspective? Is there any study or...

Mr. Sarkar, basically I would say these are the questions which we all have on the table. And unfortunately, our data and statistics department in the country is very poor, and I would say it is still improving. So it's a WHO estimate that we have 10 million diabetic patients, so -- 100 million, 10 crores. So out of 10 crores, as I shared our number, we have only 1.35 crores. And I would say there may be another 1.35 crores or 1.6 crores others. It's only 30% penetration. So it is estimated that 50% of the population is still unserved or unaddressed or unaddressable. Either they don't know it or we are not able to reach it. Now thanks to Internet, thanks to Instagram, thanks to WhatsApp, many people know about it. But in the Tier 2, Tier 3 cities or Tier 4 cities, people do not have even enough doctors. And when we talk to our sometimes our servants and maids, so there are villages, there may be one doctor in one village or there may not be a doctor in one village. So the doctor may be 10 miles away. So basically, that reach and access to the medicine is still very far away. So I'm seeing at least for another 10 years, we are seeing an open platform, open canvas and the story would be written year after year and coupled with the technology, thanks to mobile then connected devices and telemedicine. So this is a place where we'll be there for life. And of course, we have to keep alive and agile to the technology. For example, we have launched the app. Now maybe some AI would come, so we'll have the data building. So penetration of the market is important. As in today, according to the best estimate, we are not more than 50% penetrated in the country. So 30%, 40% would be a good guess. Thank you, Mr. Sarkar.

The next question is from the line of Mr. Darshil Javeri from Crown Capital.

A lot of my questions have already been answered. So just wanted to have 1 or 2 clarifications. So in FY '25, we'll be looking at kind of like a flat growth, right, like our revenue -- in terms of revenue, right? Because you're saying around INR 1,200 crores for pharma and INR 550 crores for medical devices, right, sir?

I think overall, we are INR 704 crores. Ajay, you have the estimate for the full year? Of course, we do not give any guidance, but...

Yes, rough, yes, but -- in fact, we have grown around 7%. So we should be touching around INR 1,900 crores this fiscal.

Okay. INR 1,900 crores is the target?

Yes, 10%, 11%, but this is not the official guidance, so we do not give guidance.

Okay, okay, no worries. Fair enough. And sir, just wanted to know in terms of like our margins right now, we've seen a dampener right now. So is it possible that this will kind of continue in Q4, like a lower margin? Or we see that in Q4 also there will be recovery? Like how do we see the margins going on?

Darshil, the way I look at it that, okay, these margin profile is a temporary thing because prices in B2B things come up and down very fast and frequent. So because one supplier changes one price and our whole costing goes up and down. That doesn't mean that the margin has gone down or up. It may go up for 1 quarter, it may go down in the next quarter. I always see that is there any demand of the product, so long as the product is there, so long as requirement is there, margin [Foreign Language]. I mean, so we're in businesses that if I buy costly, it doesn't mean that I will sell cheaper. And similarly, if I'm making good margin, my customer is not going to give me higher margins every time. So customer also comes to know that how much margin I'm making. So that way, I would say, broadly speaking, what we say in API, we talk of 40% gross margins. And in other formulation, everything, there is 60%, 65% gross margin. So far, we have been able to maintain. So I don't see margin is going down.

Correct. So margins -- okay. But in terms of increasing, like how has the Jan month been, sir? Like it's been good, like I don't want any exact statement, but qualitatively [Foreign Language]?

Qualitatively, I would say the prices are firming up, which is good. So -- but of course, it needs some time for the demand to come up because last quarter, typically in the trade business, in the finished dosage also and the medical devices also, in the trade, they do not try to have heavy inventories at the end. In the March quarter, people have a lot of pressure to pay income tax and GST and everything. So last quarter is usually quiet for the trade businesses, but API is usually good for the last quarter because international customers, they give orders in January, February after the closing. So in the new year, we start getting good new orders. So -- but too early to comment. So I would like to keep quiet on the guidance for the current quarter.

The next question is from the line of Mr. [ Ayush Jain ] from [ Xquity Advisory Services ].

So a quick question around CDMO part. So what you are looking forward -- where we are looking forward at the CDMO business?

Basically, Ayush, the way we look at it is that, okay, in most of the CDMO businesses, if you understand the business, the way it works is that people are having big labs and R&D scientists and everything. So they are able to communicate with the innovators for making some products, but they do not have facility to build and manufacture at large scale. So they are looking for partners like us to make the capacities who have large capacities. So on the other hand, we have found some innovators that they are working with the CROs where, okay, they work with the CROs, contract research organizations, and get the product made. And then they say, okay, Mr. Morepen, can you do it for me? I want to get this product made. Or maybe we are seeing opportunities, for example, Loratadine, we are making since last 30 years. Now we know how to make the best Loratadine. We are the largest producer since last 3 decades. Now if Bayer wants to get Loratadine made outsourced, then we are a contract -- we'll be a contract manufacturer for them. Or maybe there is a XYZ company, say it's sitting in Europe, any place, and they acquire some companies, they have some product to manufacture, so we can make it for them. The whole idea is that we don't need to be always going to the market for B2B. We can go to the innovator also. And this work was earlier being done from China. So it's basically China Plus One model. So people are in a way when -- it's a public secret that people are fed up from China and China had been behaving very erratic. So we are seeing the opportunities on the table where people want high-end manufacturing from India because we have got FDA-approved facilities. But ultimately, if we find that we can get good [ 3 ] customer and we need to put up our scientific lab, so we can put up the lab also. We have already started working on those things also. Maybe another 1 year, we'll come up with that plan also, but still it's not on the cards.

Okay. And second question is around how the QIP played, the people who participated in the QIP and the others, are they helping you out in getting foreign business, abroad businesses? Like you mentioned, they will help you around U.S. market or Europe market?

So typically, Ayush, this thing happens when you have our PE players. So in a private equity, the private equity, the person sits with you on the Board and they discuss all those stuff. But QIP investors are mostly public investors and they do not have day-to-day interaction. But certainly, we keep on getting feedback from them on our quarterly results and other stuff. But we certainly have more guidance from them on the overall business, but not any particular customer. But having large, beautiful people on your investor -- on the cap table itself gives credibility to the company.

Right, right. And just a quick thing from you. So we come from Northeast. We are presently at Guwahati, Assam. There is a lot of opportunity in Northeast, right? We can get it on the ground and all that. But the marketing campaign is not happening to that level. And previously, one colleague of mine, Mr. Dhaval or so, I don't even know his name, he also asked about that selling and distribution expenses part, right? The advertisement is not going that up or you are not doing -- focusing on much marketing right now, ground-level marketing, I'm asking.

Any particular state, any particular city, any particular district?

Medical devices, I want to just know what about your marketing plan in medical devices sector because right now, we are seeing that medical devices sector is a booming one right now.

Yes. There's a big opportunity coming up.

Yes, right. Right. So if we ante the game or up the game in the marketing part, have suppose a multiple growth in the sector?

We would love to have that. We will love to have. So we'll certainly connect with the marketing team and share your thoughts on that, Ayush. Thank you very much for your feedback.

Okay. And the third thing is LightLife is, basically, you are going with that obesity management plan, right?

That's right, weight management.

So this was the last question. I now hand over the conference to management for closing comments.

Thank you very much. So thank you very much, everybody, for a nice, inquisitive questions and, more importantly, listening patiently to the whole commentary. So we seek your guidance and support for quarter-on-quarter, year-on-year, and always giving our gratitude and shukrana for your support all the way. So looking forward for a lovely quarter ending and, of course, the year ending. Thank you very much. Have a wonderful evening and a nice weekend ahead. Thank you very much.

Thank you very much. Thank you.

Thanks a lot.

Thank you very much. On behalf of Motilal Oswal Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.