NATCO Pharma Limited (NATCOPHARM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the NATCO Pharma Q3 and 9 Months FY '25 Earnings Conference Call hosted by Batlivala & Karani Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Hrishikesh Patole from Batlivala & Karani Securities India Private Limited. Thank you, and over to you, sir.

Good morning, everyone. On behalf of B&K Securities, I welcome you all to the Q3 FY '25 Earnings Conference Call of NATCO Pharma. Hope everyone is in good health and doing well. On behalf of NATCO today, we have with us Mr. Rajeev Nannapaneni, Director and CEO; Mr. Rajesh Chebiyam, Executive Vice President, Crop Health Sciences. I now hand over the call to Rajesh for the management's opening remarks, post which we'll open the session for Q&A. Over to you, sir.

Yes. Thank you, Hrishikesh. Good morning, and welcome, everyone, to NATCO's conference call discussing our earnings results for the third quarter of FY '25, which ended December 31, 2024. During the call, we may be making certain forward-looking statements or statements about future events. And anything said on this call, which reflects our outlook for the future must be reviewed in conjunction with the risks that the company faces. I'd like to state that the material of the call, except for the participant questions, is the property of NATCO and cannot be recorded or rebroadcast without NATCO's express written permission. So we'll begin with the results highlights and then interactive Q&A session. I hope all of you have received the press release and financials which was sent yesterday. These are also available on our website. NATCO recorded consolidated total revenue of INR 651.1 crores for the third quarter of FY '25 that ended 31st December 2024 as against INR 795.6 crores for the same period last year. Net profit for the period on a consolidated basis was INR 132.4 crores as against INR 212.7 crores same period last year. During the quarter, contribution from the export formulation business was lower. However, the company expects healthy growth of business in the ensuing quarters. Thank you all. The results are all communicated. Now we will take the Q&A.

[Operator Instructions] The first question is from the line of Saumil Shah from Paras Investments.

Sir, we have this other income of [ INR 76 crores ] in this quarter. So what is that for? And if this was not there, we would have ended up doing a loss in this quarter?

No, no. Other income is primarily coming from interest income from the deposits that we have and then we had a onetime gain from the sale of land, which was announced earlier. So we had a INR 90 crore onetime gain. So that was...

From sale of land?

Sorry?

From sale of land, INR 90 crores, you are saying?

We had a pretax gain, yes. So the other income primarily consists -- rest of the stuff is part of the business. INR 90 crores came from the sale of land from -- INR 90 crore gain, pretax gain we have from sale of land.

Okay. Okay. And why, I mean, the performance for this quarter was so weak this time?

We had practically no Revlimid, Saumil. So I think completely, there's no Revlimid this quarter. I think that's one of the biggest reasons why there's a weakness in the quarter. And we also had a lot of R&D expenses, which are continuing from the previous quarter. So I think that's the reason why there is a substantial R&D expense that is there in the books. And a lot of these projects, if you start, you can't stop. And based on your cash flow, there will be a mismatch between your cash flow and the actual expenses. I think that's the reason why it's a little weak. It's a soft quarter. I mean there's no 2 ways about it. But again, we'll get a new allocation next year. I think as you're aware, we'll get almost 1/3 allocation of the total market as per our settlement, and that will start kicking in the next quarter. I think we are confident that we'll do very well in the coming quarters, but this is an exceptional quarter.

Correct. And so for this current quarter, can we expect, I mean, it would be better than the fourth quarter of the previous year for this fourth quarter, March?

It all depends on -- yes, as I said, we've been allocated nearly 1/3 quantity. So it's all how it's distributed. But yes, I think I'm confident that we should do that.

Better than the fourth quarter of previous year.

I don't want to say that, my friend. Let the numbers come. We'll see. I think it all depends on how much we stock and sell. But I can tell you the next few quarters will be good.

The next question is from the line of Arun Malhotra from CapGrow Capital.

A couple of things. One is Revlimid. Can you throw some light on volume market share currently we have?

Right now, we don't have any quantity, my friend. That's why there's no sale in the last quarter. So we'll get 1/3 for the next year. I think that's as per the settlement.

And that will start from the next quarter itself?

Yes, this quarter, this quarter, March.

This quarter, yes, sorry. And second, can you also throw some light on the settlement, especially on the GLP-1 opportunity? I know we are tied up with Mylan and we have settled with Novo. But what is the total opportunity size for us? And where are we? Is there any potential launch possible in 2026 in India?

I think the settlement date is confidential. It's not -- it cannot be disclosed. It will happen. I mean, we can't talk about the launch, but it is not -- it's not going to happen now. That's for sure. I think when it goes closer to the launch, we'll speak about it. The opportunity, I mean, we have settled one product. We didn't settle the other product. Ozempic was settled I think. The weight loss one, I don't think. I think the diabetes one we are settled. The weight loss, we are not settled. So one setting. The opportunity, I mean, I think you know that the opportunity -- it is a pretty good opportunity. Again, I don't want to start putting numbers and all. I think it's a pretty good opportunity for the company. I will limit myself at this.

Sure. What I failed to understand was, can there be a potential launch between U.S. and India? Can it be on 2 different dates because patent expires in '31-'32 in the U.S.

The India launch, as you're aware, my friend, I think subject to regulatory clearances and other issues, I think March '26 is the India launch. So I think India launch will happen next year, subject to regulatory approval and other -- any other issues to be resolved. So U.S. launch, I mean, is a date which is -- it's a confidential date. I can't answer that question directly. But yes, it's -- as I said, I think in the near term, we look forward for the India launch.

Sure. And just to confirm, we will have the first 6 months exclusivity in this?

It will not be determined right now. We have a first to file. It will be determined at a later time, not at this time.

Okay. And also one more product you have highlighted in this quarter is risdiplam, which is a $3 billion and growing at a much higher rate. Could you also throw some light on where we are in that? And when do we...

We are first to file on that. And I think we have shared FTF. I think there are 2 filers on day one. So I think -- so this we are working with Sun Pharma on this one. So it's a -- shared profits on this one. So this will be -- I mean, again, litigation is just -- it's early stage at this time.

Sure. And also the cash lying on the books, potential use of it, you have been mentioning about the acquisitions in the past. But any headway there, any leads or any comments you would like to make?

We are working on it. We're working on it. As of now, we have -- as of December 31, we have INR 3,264 crores of cash and shares liquid investments. And we have about INR 241 crores of debt. So net cash would be about INR 3,000-odd crores. That's where we are.

And any leads on...

Regarding use of it, we're looking at acquisition. As of now, it's just lying as cash.

The next question is from the line of Chetan Doshi from Tulsi Capital.

One question is that we are cash surplus. Then how come this finance cost coming every quarter? And last time, the guidance given for the current quarter was somewhat similar to the performance what we'll be doing in '23 December. But this is -- where we -- I don't...

Yes. I'll answer both your questions. Your first question is the guidance and second question, what was the other one?

The other one is finance cost. See, when we are cash surplus, how come finance cost...

Yes. I'll answer both the questions. Yes, yes, I'll answer both the questions, one at a time. First is we thought that there will be some quantity in December. I -- most of the quantity was sold off in September. And adjusted for the chargebacks, we didn't have any money this quarter. So essentially, we had no sale. We -- so but -- we did better last quarter. So I think that's what happened. I think -- see, we can make an estimate, my friend. I can't -- we thought we will be weak, but we didn't think it will be this weak, but it is what it is.

Sorry to interrupt, Rajeev, but the con call was in the month after the results of September. And that time, you only told that, yes, some sale will come in this quarter. So we'll definitely do better than the December '23 quarter.

That's what I thought, my friend, but -- and I understand, but after hearing from our partner, they said that we had a chargeback and we had -- and all the quantity was sold in the last month.

Sorry to interrupt, but there is no backup plan from the company that suppose this product doesn't come in, then the other product has to be consumed.

We tried backup plans, my friend. See, I think that question is wrong. I think we are here to state what the present financial position is. You can't have backup plans for revenue. You have what you have and what you don't have, you don't have. I don't think that question is right. What you have is what you have. What you book is what you book. What you don't have, you just say that you don't have. That's how business works.

Crop health science, this crop...

My friend, I will not answer that question the way you -- I don't like the way you're asking that question. It is what you have sold, you sold. And what you don't have, you don't have. You have to accept it, that's it.

The next question is from the line of Viraj Mahadevia from MoneyGrow India.

A very quick question just for clarification, just so I understand Revlimid sales. You mentioned, Rajeev, that in Q4 -- sorry, in December quarter, you had used up your quota. So does that mean you had front-ended sales in the early part of the year based on the allocation for the calendar year?

Basically, all the allocation that we have had, we have sold it off by September end, and we didn't have any further allocation. I think all of it was sold and there's nothing left. So I think...

Understood. And this year, you will get a fresh allocation, which is a higher number for my understanding?

Yes, it will be about 1/3 of the total market.

Understood. And will this year be more evenly spread through the year or you can't comment on that?

I don't want to answer that question. It's such a tricky question because what they sell is what they sell, right? So we will recognize income based on what we get. And you have to live with the volatility. That's the nature of the business.

Understood. No, no. Absolutely. No, I fully appreciate that. I understand.

The next question is from the line of Darshil from Finterest Capital.

My question is already answered.

The next question is from the line of Raghav from [ Rachita Pharma. ]

So what will be the quarter 4, sir? Like how we can expect the results for quarter 4?

As I said, we'll get 1/3 allocation of the total market. And I think some portion will be sold in Q1. I think we'll have clarity from them, I think once -- we'll discuss this up when we get the Q4 numbers. And I think this...

And currently, you have got another 2 approvals.

Sorry, my friend?

Two approvals.

Recently, we have got another 2 approvals on ANDA, sir. So what is the...

Yes, we had 2 more approvals. Yes. We had approval on everolimus.

With Lupin and one with...

Say that again, my friend?

You have 2 more approvals, sir, one with Lupin and one with your marketing partner with Lupin and one with some other company.

Yes. This everolimus product, we -- TFOS got launched and bosentan. bosentan, we -- the launch date is not announced yet. We'll announce close at the time of the launch. It's bound by confidentiality. And everolimus got launched. I think there are 2 generics on that product.

That will start from quarter 4 or quarter 1 of next year?

No, it launched this quarter. You'll see the benefit of that launch in Q4 of this year.

[Operator Instructions] The next question is from the line of Gagan from ASK Investment Managers.

I hope I'm audible. My first question is, Rajeev, you indicated that the R&D expenditure this quarter is elevated from your steady state or normal run rate. Can you enumerate, I mean, to whatever degree possible, what would be, as a percentage of sales, a normal R&D run rate and what has been the case in Q3?

So basically, what happens is, we are spending probably about 8% to 10% of our revenue as R&D. So when we were soft -- when your quarter is soft, what basically happens is the expenditure that you start doesn't stop, isn't it? Basically, what you're doing, you're making, let's say, a certain amount of surplus. So based on that surplus, you say that I'm going to spend this much money. But because the quarter is soft, basically what happens is the expenditure seems large relative to the revenue of that particular quarter. But you don't stop spending something just because you're going to have a soft quarter, right? That's the reason why you have a mismatch on the earnings and then you have that. But typically, it's about 7% to 8% of our net sales.

Okay. Right. And how should we think of your India business and the EM -- perhaps if one takes a 3-year view, how are you strategizing for these pieces?

I think we have some good launches. So I think one big launch, I think, has been spoken about semaglutide. Semaglutide is a very big launch. So we're expecting that it should do well subject to regulatory approval and clearance. Another launch, which is a very interesting launch is risdiplam in India. We have litigated in Delhi High Court. The judge has reserved the matter. And hopefully, we have a positive verdict, we can launch that as well. So I think that's a product that we're looking at. We are the first generic on that. We're hoping that we'll be the first generic on that as well. So I think we have some very smart launches. I think if they come through, I think the domestic should do extremely well. But again, it's all very product determined. I think these 2 will be the big ones in the next...

The final one from my side on semaglutide. Can you elaborate a little more on -- specifically in India, are you going in for both the injectable and oral solid? And in context of the purchasing power of the Indian consumer, how do you see these 2 oral and injectable evolving over a period of time? And are you backward integrated in sema? So these are questions on the semaglutide.

Sema, I think we've answered that. I think we outsourced API. Second is we are focusing at this time only on the injectable. Oral, we're not looking at it this time. We'll look at it maybe later. But as of now, no. Injectable is what we're looking at.

Okay. In Canada, you will be there on the first wave?

At this time, we don't want to discuss about our export strategy. I think Viatris is our partner. Once we have clarity, I think we will discuss it.

The next question is from the line of Prashant Nair from AMBIT Capital.

My question was I mean, similar.

Sorry to interrupt, sir. I would request you to please use your handset.

Yes, just give me a minute. Is it better?

Yes, sir.

So my question was similar. I mean, on the R&D spend part, I get what you mentioned. Would you be able to share what your, say, EBITDA margin was on a pre-R&D basis? Just trying to use this quarter to get some sense of how your margins could look on an ex Revlimid basis. So that was the objective.

I mean I don't want to get into that sort of detail. I think -- everybody keeps asking me this question. I think I've answered this question in the past, but let me answer it in a very general way. So I think R&D expenditure is based on the cash flow that you're going to have, right? So if you have good cash flow, you spend more money on R&D. If you'll have less cash flow, then you spend less money on R&D or you try to do a partnership deal so that you can offset some of the R&D expenditure. So I think you're aware, I mean, we believe that this year, we'll probably end up about INR 1,800 crores to INR 2,000 crores PAT, I mean, that's our expectation. I think we still -- we are still hopeful that we'll meet the guidance. Even next year, I think our expectation is that we'll be able to do that. And then the question is everybody keeps asking me this question is what is it after 26 months, right? So what is it are we going to have? I think we have spoken, and I think -- generally, I think we have said that our -- based on how we -- we have other products that are coming in, in '26, '27. We're also expecting that the emerging markets should do well. And we expect that our Crop Sciences, which is losing money should improve. And so overall, we should probably see a drop. I mean I think that's the elephant in the room. I think you have to accept that our earnings will drop in '27 March. How much will it drop? I think that's the question, I mean, directly indicating. So it all depends on how you moderate your R&D expenditure and what kind of stuff that you are going to do. But you should expect -- I mean, it's hard to see -- I mean, I don't want to put a number to it, but you should expect a drop, significant drop. But whether it will end at 50%, 60%, I mean, it all depends on how that year goes. But you're asking me to predict my '27 March numbers, which I think it's a little difficult. I think we'll have more clarity on it from here from now. But sitting today, I would believe that, yes, I think that's the amount of drop that you should probably prepare for.

Fair enough. Hello?

Yes, sir.

Yes, yes. Go ahead.

Fair enough. No, no. So then, just one additional clarification. You mentioned earlier 8% to 10% that's on annual revenue, right, that you mentioned that you have spending...

Yes, absolutely. Absolutely, yes.

The next question is from the line of Hrishit Jhaveri from PI Square Investments.

So I just had a clarification about the Revlimid. We are expecting 1/3 quantity this year. Can you give a ballpark market total size out of which we'll get the 1/3 share?

What is the ballpark size of the market you're saying?

Yes, out of which we'll get the 1/3 of...

1/3 of -- I'm sorry, I didn't understand what you're saying.

The total quantity which you will -- hello?

Yes. I didn't -- I couldn't catch your question, my friend. Could you repeat that again, please?

The total quantity out of which the 1/3 quantity, which we will get to do business this year, correct, in the Revlimid space?

It's 1/3 the size of the market, my friend. That's all I can say. Is that what you're referring?

But what would be your view on the total market size? Any number there?

On the size. Then you're asking me to estimate the price erosion. I can't do that my, friend. I can't. It is, I can say, 1/3 of the total volume. I think that's all I can tell you.

The next question is from the line of Dixit Doshi from Whitestone Financial Advisors Private Limited.

A couple of questions. Firstly, you mentioned that obviously, post FY '26, we will see some drop in the revenue because of the Revlimid. But other than the semaglutide in India, which are the bigger launches you are expecting? And my second question is regarding the olaparib time line, if you can broadly speak about that.

We have -- at this time, we are trying to file it in multiple markets. At this time, it's very premature to come back with the time line on olaparib. Semaglutide, India, we've already spoken. I think [indiscernible] plan, we've spoken about India subject to how fast the litigation goes. These are the near-term triggers for India. And export business, I think, is doing very well. I think Brazil and Canada, we're expecting a lot of approvals in our oncology portfolio. So I think we expect some good launches there. And we're doing reasonably well now in Middle East as well. So overall, our ROW business is doing reasonably well. And I think that will probably drive the base business post '26.

But olaparib, can it come in FY '27 or it is difficult to judge at this point?

It depends on which market, my friend. Some markets, it is open and early, some markets there is litigation, so it's tough to judge.

In terms of U.S.?

I can't answer that question. It's a Para IV litigation. I can't answer that question.

The next question is from the line of [ Priansh Dalmia ] from Oculus Capital. Due to no response from the current participant, we will move on to the next participant. The next question is from the line of Badri Vishal Bajaj from Bajaj Shares and Securities.

Sir, I have specific questions on sequential earning of segment-wise revenue in export of formulation products. The basic reason I wanted to know that it has fallen below 25% if you take Q2 to Q3 of 2025. So reason for this sudden fall, please enlighten us, sir.

Because there's no Revlimid, my friend. I think that's the simple answer. There's absolutely no Revlimid. That's the reason why there's a fall. Because that's a big product for us, and it's not.

It is very significant on our earnings also. That is what -- is it the only reason or any other...

That is the only reason. That's absolutely right, right on the money.

The next question is from the line of Prafull Rai from Arjav Partners.

Any time line you have for the launch of Revlimid -- sorry, semaglutide?

Which market you're saying?

India market.

For U.S. you're saying or...

India. India.

India, I think our expectation is March '26, subject to regulatory approval and settlement of other issues, I think.

The next question is from the line of Nirali Shah from Ashika Institutional Equities. Due to no response from the current participant, we will move on to the next participant. The next follow-up question is from the line of Gagan from ASK Investment Managers.

Sir, in U.S., barring Revlimid, you have a good pipeline of 24 FTFs, if I, I mean, have it correctly from your presentation. Can you -- I mean, to whatever degree you're comfortable, can you share on the time line of the launches? And what would be the key ones perhaps with a 3- to 5-year time frame? And what could possibly be a ballpark revenue outcome from these?

That's a tough one. But what I'll do is I'll tell you by size what are the biggest ones that we have. So if you take the next -- I mean, obviously, all of them will play out over the next 7 to 10 years. I mean, all of them will play out over the next 10 years. But if you want to start -- I mean, this year, we have Revlimid. And then we have Wegovy and Ozempic whenever that happens, but that's the next big one. And then we have olaparib, that's a very big one. Then we have irbrutinib where we have sol FTF. Then we have erdafitinib, which is where we have sole FTF. The ones which are shared as sole FTFs are probably the most valuable ones. And I think that's what I would look at it. The ones that I mentioned probably in terms of economic value are probably the biggest ones. And like a mid-level value would be like [indiscernible] 10 milligram and [indiscernible]. I think these are like medium level and bosentan will be also medium level. But I think the ones I mentioned earlier are probably the bigger ones. Revenue estimations, it's tough to judge all these things at this time. But I think in terms of upsides, these are the big ones.

Right. I mean, would it be safe to say that if we keep Revlimid aside for a moment, on the base business, these products can give you a handsome growth?

When they happen, yes, yes. Yes, they should. When they happen, yes.

Yes. Right. And second one on semaglutide India, I mean, how do you see -- I mean, what sort of scale do you see the market getting in the first year or -- and then over perhaps 3 to 5 years? And how does it impact perhaps the other treatment lines in diabetes in the market currently?

Honestly, I don't know. I think we -- let the approval come in. I think once we get the approval and when we launch and we'll see how -- once the market forms, I think we'll be able to make judgments about what other things that you said. It looks like it's getting multiple indications and approvals in different settings. I think it's a very exciting molecule. Honestly, I don't know, my friend. I think once we launch and once the market forms, I think we can give you more color on that question.

Okay. I think the innovators -- can I take one more? Or would you rather that I get back to the queue?

Yes, yes. Sure, sure. Please go ahead.

So the innovators have also expressed their interest in launching in the Indian market and perhaps they also want to preempt some of the other companies and establish themselves. Do you see that in any way detrimental to how -- to the prospects of NATCO or some of the other peers?

I think the innovator will obviously have his share. I think you can't deny the fact. But obviously, generics also play a very strong role because of the affordability element. For the record, my friend, the innovator has not launched the injectable product yet in India. I've not seen the product. They only launched the oral, which is used, but I think most of the market is the injectables. So as of now, we're not seeing the market because he has so much demand elsewhere that he has not supplied in our part of the world.

The next follow-up question is from the line of Saumil Shah from Paris Investments.

Sir, as you mentioned, we have about INR 3,000 crores of cash. And probably by next year-end, we would end up at around INR 5,000 crores or maybe around that. So why don't we -- I mean, if we are not getting any options of acquisitions, why don't we do a buyback and reward our shareholders and maybe even promoters can participate?

Good question. I don't have an answer to that question either. We were looking at a capital what you call acquisition. I think my present position is that we'll just look at an acquisition. I have not thought of it. At this time, I don't have an answer.

Because one more reason is...

My stated position is that...

These are just my views. One more reason doing a buyback. I mean, maybe next year, whenever profits go down, okay, by doing a buyback, we are reducing our equity. So at least our EPS hit won't be so much, I mean, just my views.

Of course, no harm in having a view. I personally feel, yes, we'll make that call then, my friend. I don't want to make that call today. Give me -- give us some time. We have -- I'm still looking, and I believe we'll be able to do some transactions. We'll make that call. I think if it is what you just said, I mean, that we are unable to do an acquisition, then yes, certainly, I think that is the way forward. But for now, I think the idea is that we'll use this money for acquisition...

Correct. Yes. And one of the previous participants had asked about the interest cost. I think that question was unanswered. So maybe we have some cash...

I'll answer that. I'll tell you it's simple math. It's INR 200 crores of debt that we have, about INR 100 crores is what we call foreign bill discounting, INR 100 crores are tax payments that we make for the advanced tax. So basically, what happens is the borrowing cost of this money is around 6% and the deposits are giving us 8%. So it does not make sense to break an 8% deposit and -- which you can borrow at 6%. This nature of this money is short-term debt. It's usually payable in 60 days to 90 days. And generally, we get cash flow, which pays off this debt. So that's the reason why we borrow. But it's not a large amount. It's -- at any given time, it's not more than INR 200 crores. That's the reason why we borrow.

The next follow-up question is from the line of Chetan Doshi from Tulsi Capital.

One thing, Rajeev. If -- this year, we are going to make record profits, but our interim dividend is very, very less, INR 1.25 or INR 1.5. Is there any -- are you waiting for much more profits to distribute to the shareholders on a lighter note, please?

Again, I'll give you my stated position. We believe that we'll do an acquisition. I want to preserve the cash for the acquisition. I don't want to give it off. We're giving a modest dividend. I'm aware of that, but I'm waiting for an acquisition. So that's the reason why I don't want to use the cash on books. So I'm holding on.

And can you throw some color on the Crop Science business, how it is performing?

It's doing about INR 15 crores, INR 16 crores a quarter. I think it's still losing money. But we believe, I think next year, we should be able to break even. I think that's the objective. So I think we'll probably settle around, I think, INR 130 crores, INR 140 crores is the next year target, at least minimum. So I think if we're able to do that, I think we'll come close to a breakeven based on the portfolio we have.

The next question is from the line of Nirali Shah from Ashika Institutional Equities.

Am I audible?

Yes, ma'am.

Yes, please go ahead.

Just one question I had. So how should we look at FY '26 in comparison to FY '25? Just wanted to understand what kind of growth should we pencil in for FY '26? And do we expect fourth quarter...

It all depends on the price erosion. It all depends on the Revlimid price erosion. So I think that because it plays such a big role in our earnings, I don't know. I think it should do well. I think at this time, we are thinking that it will -- we'll be able to maintain the same earnings that we have this year. But again, once we have clarity on how much erosion is, I think we can put much color on that. But as of now, that's the base case. I think hopefully, we'll be able to -- again, whatever I'm saying is all depends -- it's a function of the price erosion. So I think we'll have more clarity in the coming quarter I suspect.

So should we take 20% on a conservative basis? So that is the guidance that...

I cannot answer that question. No, no. I'll not fall into that trap. I refuse to give guidance. I'll tell you when the numbers come, we will share the numbers, and then we'll see how it goes because it's hard to predict at this time.

Okay. Okay. And just on the fourth quarter, will it -- do we expect it to be weaker than the third quarter?

Can you say that again, miss? Say that one more time. Repeat that question.

Should we expect the fourth quarter to be weaker than the third quarter? Because first half has been fabulous for our company. So do we expect fourth quarter to be a little bit more weaker?

Again, see, we're getting quantity only in March. So it will be -- you only have 1 month of sale. So I think Q4 will start off slowly and then -- but...

Ladies and gentlemen, we have lost connection of the management. Please stay connected while we reconnect them. [Technical Difficulty] Ladies and gentlemen, we have the line for the management again. Mr. Rajeev.

I'm sorry, we got disconnected. Can you repeat that? I didn't catch the question. Can you repeat it?

Yes. So I was asking, will the fourth quarter be a little weaker than the third quarter? So this is in the hindsight that the first half has been really good for the company. And given that 20% growth on the bottom line, so even if the fourth quarter is weaker than third quarter, we would still be able to achieve that growth. So it's just 1 month away from closing the fourth quarter.

It's hard to predict. I don't want to come and say something and again -- and then I'll be caught by a surprise. I can -- what I know I'll tell you, we have a 33% allocation. We will launch it in March, and we believe that we should have a good year. And how much quantity we sell in every quarter, I think we'll just see how the market plays out.

The next question is from the line of Manish from [ Rachita Pharma. ]

Sir, you have told about 1/3 market will -- this March Q1 and Q2 sales, it will increase or decrease in Q4?

What's your question again? Can you repeat? Your question is Q4...

You have told that 1/3 market will be there in Q4.

Yes, correct.

Of Revlimid. So this will be better than Q1, Q2 or it will be decreased?

I think we have not answered that question, sir. I think what we have said is that we're getting an allocation. It will start off in March, and we should do well during the year is what I've said. We have not given how much we will sell in Q1 -- how much we will sell in Q4, how much in Q1, we have not given guidance. We just said that we had 1/3 of the quantity. That's all we said.

1/3. So Q4 will be...

And I said it's a function of market share and market erosion.

And what is the size of everolimus in Q4 and next year...

Yes. everolimus total market is about 120 million. So there are 2 generics, and we have a 50-50 share with our partners.

So it will impact in Q4?

Some portion of it will come in Q4. Yes, some portion will come in Q4, yes.

Some portion will come in Q4. And what about next year, you are looking good to this product?

Yes, with everolimus, yes. We're looking good. Yes, yes.

You are looking good. Now I'm ending this question along with one request. Can you look on the investor side also, sir, please?

Investment side.

Investors. Please look on investors also, sir.

No, we are looking at investors. We are doing what is right.

Because investors in your company seeing bright future, but result was very bad.

See, I'll tell you -- let me answer this question. See, one fundamental thing that you need to understand with us is our company chases big jackpots. And sometimes you're going to live with volatility. And they're so dependent on particular -- one particular event or one or 2 events happening, it causes huge volatility. If you're an investor in our company and you've been around long enough, you will know that you will have volatility. But if you look at it in terms of a long-term view, we have always delivered great earnings. It's just that sometimes you'll have quarters which are going to be difficult, and you'll have probably a year or 2 when sometimes it's difficult. But the pipeline, the product filings are always very lucrative. And I think in terms of our gross margin, we're probably the best in the industry. But you have to understand that you have to live with the volatility. And I've said this many times, I'll repeat it one more time. You have to live with the volatility, and that's the nature of our model. And unless you're willing to accept that, you will always see these highs and lows. We are not the company which will deliver 10% core on growth, 15% consistent earnings. We are not that type of company. And I -- because we chase jackpots, that's the nature of our business. There's always uncertainty. I think that's the way it is.

The next question is from the line of Raghav from [ Rachita Pharma. ]

Hello?

Yes, sir, you are audible.

Yes, please go ahead.

Sir, any good news for investor side like in future? Any positive news...

We'll have good year next time. That's all I can tell you. We'll have next -- we are hopeful that we'll have a good year based on the assumptions that we have made.

Not only the financial-wise, but also stock-wise, sir?

I don't control stock price. I can only control -- see, my friend. My fiduciary responsibility is to tell you the way it is, what we are earning, what we are not earning, what is our jackpot, what is not our jackpot. End of the day, it is for you to value us based on what we are saying.

The next follow-up question is from the line of Gagan from ASK Investment Managers.

Sir, you indicated that you're looking aggressively for an acquisition. Is it possible to spell out some -- give some color on which areas or which markets would be priority for you? How are you largely thinking about the acquisition?

One is we want to strengthen our ROW business. I think that's one acquisition we're looking at. Another one possibly is also to strengthen our U.S. front end because the U.S. front end doesn't give much sales. So that's -- we want to strengthen that portfolio. I think these are 2 active areas we're looking at, at this time.

The next question is from the line of [ Gaurav Sudhir Shah ] from Kotak Securities Limited.

I got a very simple question. I was just looking at the trend. Generally, is it so that the Q3 is a little soft for us? Has that been historic? And what could be the probable reasons for this cyclicality?

Say that one more time?

Is the third quarter or the quarter that just passed for years, has it been soft?

It's very simple. Basically, what happens is you get a quantity allocation in Q1, which is -- sorry, in March. So basically, what you do is you sell some portion in March, you sell some portion in June and you sell some portion in September. And if you have anything left, you sell in December. And usually, December tends to be the weakest and your June and September tends to be the strongest. And March is probably the most moderate month. And if we have enough -- so I think that's how it works.

The next follow-up question is from the line of Dixit Doshi from Whitestone Financial Advisors Private Limited.

Yes. Just one follow-up. You mentioned that next year growth depends on the price erosion on the Revlimid as well. So [indiscernible] wrong because I was assuming that price erosion will happen only once it goes off patent post January '26 or it can -- or price erosion can happen even earlier also?

It all -- see, there is some -- I don't want to get into the pricing of the product. I think I'm putting my caveats out based on what I believe will drive the earnings. It's a function of the market and the market formation. So that's the best way I can answer that question.

Okay. But usually, let's say, historically, in other drugs also, have we seen the price erosion even before the patent expiry? Because right now, it is controlled market only. So why would price erosion will happen?

There is some -- I don't want to get into it, my friend. Teva is handling the marketing. And there's a lot of other dynamics and other generics are also there. So I can't answer the question. But there is erosion. Hopefully, it will hold up to a point so that we can make some money.

The next question is from the line of Hrishikesh Patole from B&K Securities.

Am I audible?

Yes, sir.

Yes, go ahead.

Sir, just quickly, what were the subsidiary sales in 3Q and for 9 months as well? Can you just provide some numbers?

Year-to-date sale of the subsidiaries is about INR 408 crores.

INR 480 crores. Okay.

INR 408 crores.

INR 408 crores. And for 3Q?

Q3 is INR 109 crores.

Okay. Sir, on the -- any update you can provide on the Kothur site? I mean what's -- where do you stand with the progress at the...

I think a remediation action is ongoing. And I think -- so as of now, we are still supplying, but we have moved a lot of the key products to Vizag. So I think that's...

Sir, does that answer your question?

Yes.

The next question is from the line of [ Ashish Kabra ] who is an individual investor.

Hello? Can you hear me? Am I audible.

Yes, sir, you're audible.

Yes, please, go ahead.

Yes. Sir, I had just one question related to -- sir, at present, we have INR 3,000 crores of cash. And by next year, as my previous participant told that we'll be around INR 5,000 crores. So sir, are we -- can we take debt also to take these takeovers that you talk about? Or...

Possible. Let the takeover happen and then I think we'll see how much cash we had to use, how much debt we had to use, all that stuff. We'll decide that.

Okay. And sir, you told the takeover will be from geography base, but in what sectors that will be? Can you just give some color on that?

I think we said no, I think one in the U.S. market and one in the rest of the world market, not the advanced regulated markets, rest of the world market.

Yes. But that is like geography front, but in what sectors like formulations or...

Pharmaceuticals. I mean therapeutic, prescription pharma.

The next question is from the line of Rusmik Oza from 9 Rays EquiResearch.

Sir, my simple observation is this quarter, December quarter, we didn't have sales of Revlimid, and we did INR 475 crores of revenue. Does it mean that in between March to September, we've done roughly around close to INR 2,500 crores of Revlimid sales? And just if you can because the calendar year is end, last calendar year, if you could just provide us an absolute figure of what kind of Revlimid sales we did last calendar year, it will help us to understand what kind of growth we'll see in this calendar based on 1/3 market share?

I will not do a split for marketing reasons, competitive reasons. Second question is, you know that you'll have 1/3 share. It all depends on the erosion that's going. You can't predict last quarter's sale with next year's sales. Sorry, that is not possible. We'll just see how the price erosion is, and we'll see -- we'll take from there.

Okay. Okay. Second question, sir. On the base business, any guidance you would like to give, what kind of growth you are anticipating for the next -- this calendar year or FY '26?

I think the India launches we have spoken about. I think we're expecting our ROW business also to do reasonably well because we have a lot of approvals expected in Brazil, almost 7, 8 approvals are expected in this coming year. And Canada also, we're expecting some good launches. So -- and Middle East also, we're doing reasonably well. I think we should do well. Again, I don't want to give a particular number, but yes, I think, yes, we should do well.

And any guidance on the agrochemical business because that's been quite volatile in the last many quarters? How do you see this panning out?

We believe -- I think next year, our target is that we should achieve breakeven -- we're doing about INR 60 crores a year right now. Our target is that we should target about INR 120 crores to INR 150 crores next year. So that will help us come closer to breakeven.

The next question is from the line of [ Vignesh, ] who is an individual investor.

I have a question regarding the current scenario in U.S. tariff. What my question is, in case the U.S. laid some tariff on import on pharmaceutical products from India, will this impact our revenue? And if yes, what is the strategy we are planning to escape from this impact?

I think as of now, it's premature to answer that question. But it will affect the whole industry, I think, because a lot of the manufacturing is out of India.

Yes, sir, this affects the whole industry. But what I'm asking is, do we have any specific strategy to escape from this like expand to some other countries like that?

The only escape is you need to build -- buy a front-end manufacturing in the U.S. That's the only way you can go forward, the only solution. I think as earlier, we said, we're looking at a front end in the U.S. So I think if we're able to get a manufacturing that's what will make it interesting. But yes, I think that's the only solution to this, for which we don't have a front-end manufacturing in the U.S., but that's the only solution if at all, that problem were to happen.

So we are ready to move our manufacturing in the U.S. itself. That's what you are saying, right?

Some products. I mean you can't do everything, honestly, because it doesn't work out. But yes, I think you will have to move some products to the U.S., I think most probably. I think to answer your question, if there were tariffs and then what is your plan B, that would be your plan.

The next question is from the line of Arun Malhotra from CapGrow Capital.

Just wanted to ask what has been the price erosion until now on Revlimid from day one and number of players present?

I can't answer that question. I'm sorry, my friend, I can't answer that question. If you have any other questions, feel free to ask.

The next follow-up question is from the line of Chetan Doshi from Tulsi Capital.

Rajeev, something which you would like to share with the shareholders, which on immediate basis, some cheer up from the company. See, in spite of certain bad things happening, some good things are also happening in the company, which we don't know. If you would like to share something, we'll be very grateful.

I think overall, I think the -- see, Chetan, let me answer it. You're asking a very philosophical question. I'll give you a philosophical answer. I think what we are doing -- see, my job is only to tell you what we're doing. I think we can tell you like this is the product that we have filed, and this is what we think the outcome is. And this is what is the volatility. And I think my fiduciary responsibility is to tell you what we're doing. That's all I can tell you. And I think end of the day, we hope that a lot of the strategies that we pursue will work. And I think sometimes they don't work and that causes volatility. And it's the nature of the beast. That's all I can tell you at this time. Yes? Thank you.

The next question is from the line of [ Rahul Chaudhary, ] who is an individual investor.

Sir, will it be fair to assume that ex Revlimid, our operating margins would be around 18% to 20%?

As of -- you're talking about...

Yes, whatever other business we are doing because, I mean, the numbers talk to me as if I think we are doing like an 18% operating margin, if I remove the R&D that you talk about because this quarter is like ex Revlimid, right?

Yes. I think -- yes. I mean, again, yes, possible. I think it depends on the quarter, yes, possible.

Yes. Because I mean, if you have to forecast like asking us to do it 2 years later, ex Revlimid. But sir, the best...

Yes, see, Rahul, I've answered that question. So basically what I've said is that we should do well this year, we should do well next year. But you should assume in '27 that we should see a drop of more than 50% to 60% in our earnings. I think that's already there. It's factored in, and I think this has been told many times that we should see it. And I think we have been telling that I think you have to accept the volatility because when something big goes away, it is going to impact. And we are very honest about it. I think we've been upfront about it. I reiterate it one more time that you have to accept that this is how it's going to be. But you have to assume that we have these other products and some of them will come through eventually and that you will see a period of volatility, but that's the way the business works.

But like you said, we have a fiduciary duty also to do what's the best. Last 9 years, if you look at the company's market cap and we shareholders, we don't get any salaries or whatever. So we are working on the capital appreciation. So that hasn't happened. So do you think the strategy is still working? It must be working because you're earning -- yes, because for 9 years, the strategy you have applied, I mean, that is where we are right now.

See, Rahul, I -- What I'll do is, okay. See, what we are trying to do is I think we try to maintain the best governance that we have, and we try to do the best we can based on what we believe the market is. If you look at our earnings, I think we're probably one of the best earnings in the industry in terms of EBITDA. I mean, our earnings will match any of the larger cap companies. The fundamental issue here is that there's an element of volatility that comes in our earnings. And it is the way it is. I mean, I don't have a better answer to that question. But what I can strive to do is that we try to build a business which is more stable at a base level by doing an acquisition, which we've not been able to execute, obviously. And I'll be very honest about it. That's probably one thing we probably didn't get right. But I think we're trying to see what we can do to get that right. But having said that, in terms of our ability to deliver, I think we're probably the best -- we've done as good as anybody else.

Sir, my last follow-up -- I mean my question is...

Yes, go ahead, Rahul.

I think apart from Revlimid now, what we are looking forward to is the domestic opening up of semaglutide market because I think that is the thing that is going to replace somewhat the earnings right now. So where do we as investors get to follow up as to where NATCO is in the permission queue? How do we -- I mean, which is the website or how do we get to know, sir, because the last I read that Sun Pharma and you had both applied and I think some waiver you've got because you've already done some global tests and all that. So how do we...

You asked me, so I'll ask you -- I'll answer the question. So basically, what the DCGI has done is they have asked everybody to do a bioequivalent study. So we have done a bioequivalence study, and we've shared that data. Now we're awaiting the clinical permission. Sun and Reddy's, I think, have already started the clinical. And I think we are hoping we'll get our clinical permission shortly. I think everything is cleared. We are hoping to start. And if we start the clinical trial, then quickly, we need to dose and show efficacy. Hopefully, we'll be able to complete this trial by end of the year, and then we submit for permission by end of the year and all goes well and regulatory permission and all issues resolved, hopefully, we'll be able to launch it next year. I think that's the time line.

Ladies and gentlemen, due to time constraint, we will take that as the last question. I would now like to hand the conference over to the management for closing comments.

Yes. Thank you all. Again, great questions. Have a good day. Thank you. Yes. Bye-bye.

On behalf of Batlivala & Karani Securities India Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.