Torrent Pharmaceuticals Limited (500420) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Torrent Pharmaceuticals Limited Q4 FY '21 Earnings Conference Call. We have with us today Mr. Sanjay Gupta, Executive Director, International Business; Mr. Sudhir Menon, Executive Director and Chief Financial Officer; and Mr. Aman Mehta, Chief Marketing Officer, India business. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sudhir Menon. Thank you, and over to you, sir.

Yes. Thank you. Good evening, everyone, and welcome to quarter 4 FY '21 earnings call. We hope you and your families are keeping safe and healthy. Quarter 4 continued to witness mixed wells of COVID recovery across the market. In the midst of the second wave of pandemic in certain geographies we operate, and particularly in India, we continue to give highest priority to the health and safety of all our employees and their families while ensuring continuity of supplies to fulfill patient needs. In terms of financial performance during the quarter, revenues were flat at INR 1,937 crores. The operating EBITDA was INR 582 crores, up by 6% on a Y-o-Y basis. The net profit were INR 324 crores, up by 3% on Y-o-Y basis. Adjusted for onetime tax benefit in the base year, the net profit grew by 24%. This adjustment was towards onetime tax benefit of INR 53 crores, which we got under the CARES Act, which was enacted by the U.S. government in March '20 in response to the COVID-19 pandemic. [Technical Difficulty]

Participants please stay connected as the line for the management got disconnected. Thank you for patiently waiting. You have the management the reconnected. Sir, you can go ahead please.

Yes. I don't know where I got disconnected. So I think I'll just repeat the financial performance during the quarter. So during the quarter, the revenues were flat at INR 1,937 crores. Operating EBITDA was INR 582 crores, up by 6%. The net profit was INR 324 crores, up by 3%, but adjusted for onetime tax benefit, which we received last year same quarter in the U.S., the net profit grew at 24%. In terms of leverage, the net debt-to-EBITDA has come down to 1.6x as of March 31, 2021 versus 2.2x as at 31st March 2020. The Board of Directors have recommended a final dividend of INR 15 per equity share. I now request Aman to share India performance for the quarter.

Thanks, Sudhir. India revenues were INR 922 crore, by 10% on a year-on-year basis versus IPM growth of 5%. The growth was driven by continued recovery in top brands in chronic, subchronic and acute therapies and aided by new launches. Torrent continues to outperform the market in high potential launches from last year. We further launched 3 new products in Q4, including brivaracetam in the CNS therapy. Our vildagliptin is ranked first in terms of volumes amongst the branded generic players and continues to gain strong traction. All other launches in the CVD therapy continued to gain market share in leadership positions. We have completed the field force restructuring announced in the previous quarter, and MR strength now stands at 3,600, with the PCPM of 8.5 lakhs. And this portfolio is now fully integrated. Torrent has entered into a voluntary licensing agreement with Lilly for manufacturing and distribution of baricitinib in India. We are currently in talks with several other companies for similar partnerships and plan to strengthen our COVID portfolio. Our existing gastro anticoagulant portfolio has paid an important role in the second wave of COVID as core prescriptions. Torrent continues to focus on brand building and specialty approach and had 16 brands in the top 500 of the IPM, with 10 brands more than INR 100 crores sales. I'll now hand to Mr. Sanjay Gupta for the international business.

Thanks, Aman. Starting with our branded generic business in Brazil. Q4 revenues were BRL 141 million, up by 19%. On a full year basis, our revenues were BRL 454 million as compared to BRL 409 million in the previous year and a growth of 11%. For reference purposes, the overall market growth in Brazil for the pharma market is close to 9% and a substantial piece of it is coming from COVID-related therapies, an area where we have not presented in Brazil. Despite the absence from COVID, we are able to grow our growth sales period to the market. The growth has been driven by the market share gain in our largest brand. These launches made in our preceding quarters, especially mirtazapine and bisoprolol and an uptick in our generics business. Moving on to Germany. Revenues were at EUR 30 million, up by 14%. Overall, German market growth has been affected due to an extension of lockdown. In Q4, Torrent has regained its market share to 7.1%, which is at par with this level prior to quality issues in Q3 of 2019. In the U.S., Q4 revenues were $37 million. They were down by 29%. U.S. growth continues to be impacted due to temporary continuation of our starting products, absence of new launches and price erosion on portfolio. As of March 31, 2021, 54 ANDAs were pending approval and 6 tentative approvals were received, 8 ANDAs were filed during the last quarter. To conclude Q4, Torrent continues to witness strong growth in India, Germany and Brazil, despite the mix trends in market recovery, and we are backed by market share gains and new launches. Our focus continues to be and weakening our presence in our core markets and then returning our U.S. business back to growth. Operator, we can open the call to questions now.

[Operator Instructions] The first question is from the line of Prakash Agarwal from Axis Capital.

Yes. My first question is on comments on the free cash flow generation for the year and the debt deduction, what has been the number? And what is the outlook for the next year, the '22?

So I think in terms of debt reduction, this year, net, we would have repaid around INR 900 crores. I think a similar number can be looked at for the next year. That's what looks like as on date. And in terms of free cash flows, I think we should be close to INR 1,750 crores to INR 1,800 crores this year.

Okay. And in terms of India outlook, so clearly, 10% growth has been better than peers. But as we move to '22, I understand uncertainties remain, but how do you see the outlook for the rest of the year, given last year, A, the base was low, and we are seeing uptick in volume now. So -- and despite the lockdown continuing, how do you see the growth for '22?

So the full year would be hard to say as of now. But if you look at maybe the next one of quarters, going by the April secondary data that has been released, on a base adjusted basis for last year, the IPM growth in the month of April is around 21% and predominantly driven by COVID-related prescriptions and treatments. So as the situation improves through the next few weeks and months, this should start tapering down. But on a normalized for the corrected base basis last year, we should expect the IPM to go at about 15% for Q1 and maybe something similar for Q2.

Okay. And lastly, on the U.S. business side, 2 things here. One is on the -- from U.S. FDA, have you heard anything? They have release mentioned guidelines on desktop inspection? That's one. And secondly, are we on track to start seeing some recovery from second half onwards? Would that be correct understanding?

So from the U.S. FDA, we have no particular guidance to share. So we have not heard anything in terms of either the desktop audit or in terms of travel to India, specific to Torrent? As far as the date for turnaround is concerned, it's quite dependent upon getting some approvals from the 54 ANDAs that we have pending with the U.S. FDA. So it's hard to pinpoint the date for us, Prakash.

Okay. But as a matter of the caution, have you started to transfer out or anything, any large chunky product that we might be expecting or start filing from other sources? I mean, is there a plan B, which we are working on?

Yes. So we've started transferring products to a couple of CMOs in India. So that process has been initiated. But it's a little time-consuming process. So it's hard for me to tell you when we have an impact. The other things which are a little slight positive for the U.S. market is our Levittown plant started manufacturing GMP matches in April, and we will start commercializing them in June. So that is all, I would say, has started. We have got our sartan portfolio is relaunching also in the June time frame. So by the end of the year, we'll be back in consideration for 4 to 5 sartan. And lastly, we've got some derma approval, specifically 1 product called where we received the tentative approval. So there are few things here and there are working out fine. But the big plants are the ones which can substantially will seem to be stuck with the FDA for now.

[Operator Instructions] The next question is from the line of Neha Manpuria from JPMorgan.

My first question is on the Germany business. That business, despite the quality issue being resolved, is at about EUR 30 for the last 3 quarters. I think you mentioned some impact from extension of lockdown, but now that things are normalizing in Europe, are we seeing an uptick in that business? And how should we look at the growth potentially going forward. Does -- can we expect more tender wins, higher volumes that we can recap there?

So generally, the German market suffered quite dramatically. The latest results show a quarterly decline of 3.5% as compared to a normal growth rate of 3%, 4%. So the market has offered. We also had some issues in the supply chain, like the warehouses and the wholesalers had some COVID-related issues because of tough a little small. And yes, assuming that the German market normalizes to its low single-digit growth rates, we can expect Torrent to reach high single digits, earlier seen. We have no issues in terms of winning tenders or in terms of demand, we continue to launch new products. And I think also the supply-related constraints and the quality issues are being resolved. We should be back on track for, say, high single-digit growth rates.

And what is your expectation in terms of the market normalizing in Germany? You need a couple of months? Or do you think it could take longer? I mean what would be the factors to normal -- for that market to see normalization?

Yes. So the key factor is vaccination. So Germany is a little bit lagging behind now. The highest rates that we've seen in the U.K. and the U.S., it's close to 50%. German is close to about 35% vaccination, but it's ramping up quite fast. So I think as soon as they cross the 50%, we should expect life and markets to normalize to extent. So our expectation is that like come quarter 3 of this current calendar year, we would be looking up in Germany?

Understood. And my second question is on the operating cost. The operating cost seems to have in stock, particularly after -- if I adjusted even for the R&D spend. Sudhir, is there -- is this full normalization of our cost in India? Or is there any one-off element in this operating cost number?

No, I don't know whether to call it one time. So as you said, there is a normalization of R&D activities, which are happening, which has caused increase in R&D expenses, right? Those numbers are there with you. So the increase in R&D expenses versus the previous quarter is roughly INR 36 crores, right? So that's one component. The second component is, I mean, there are some additional activities, which we are carrying out at Germany. So there's also manpower, which we have taken. So it can be 3 months, 5 months, 6 months based on the amount of work which is involved in Germany. So I think this would remain for, let's say, the next 6 months on a very congers side, I can say. And then probably it should normalize.

So the SG&A cost currently does not factor in normalization of the India business. Is that correct?

Most of the expenses have started going up in India. But not in a major way, I would say.

[Operator Instructions] The next question is from the line of Damayanti Kerai from HSBC Securities.

My question is on gross margin front. So this quarter, we have seen around 74%, so higher than usual rate seen in previous quarter. So how should we look at gross margin trends ahead?

Yes. So I think the quarter 1 was also 74% out of the way, I would say. And I think the guidance which I had provided earlier is that 72% to 73% looks a normal kind of a thing. But yes, I mean, to specifically answer your question on the -- on this quarter, the share of branded business has gone up compared to quarter 3, almost, I think, by 5%. So that's bringing in an incremental margin significantly, I would say, out of the 2%. And there would be some change because of the product mix is across the geography. So that's how the 2% is coming in quarter 4.

Okay. So broadly, as you indicated, 72% to 73% is the normal range, which we should be looking ahead?

Yes. And I would say more towards 73% because if you look at the last 4 quarters, we -- by and large, I think we are moving towards 73%.

Okay. That's helpful. And my second question is on Brazil market. Apologies I missed your initial commentary. So can you talk a little bit more about what kind of recovery you are seeing in the market? And how Torrent is placed in both the branded as well as generic part of the market for next few quarters?

So Brazil on a macroeconomic front, there are a couple of of news. Firstly, on the vaccination side, it close to about 20% of population vaccinated, and about 1 million people being vaccinated every day. So it's speeding up, and we expect the latest forecast for the last year was GDP of minus 4%. And this year, the expectation is plus 4%. On the exchange rate side also, the that stabilized the exclusion and in fact strengthened in the last 1 month. So overall, the picture for the country despite all the political turmoil and the year is looking bright from an economic point of view. Pharma market reflects that and pharma market is going strong. We continue to expect about -- so this year is about 8.8% growth 2020. 2021, the expectation has been 9% to 10% growth in the pharma farmer market. And our expectation is that we'll be doing better than that basically on the fact that we have -- we operate in high chronic areas before large brands and the focus is on specialists. So expectation for Brazil business going forward with the new launches and the focus on generics business. In fact, it should continue to perform well. We would be 100% discontinuing the tender business from October of the current year. So that was one factor that was led to variability in our performance from quarter-to-quarter. So that should be a thing of the past soon.

Okay. So like we are now removed trade generic business -- sorry, your tender business. So branded generic part should be the 80%, 85% of the business and then remaining 15%, 20% from the generic business, right?

No, it's 90%-10%.

90%-10%?

90% -- about 90% would be about 10%.

Okay. And on approval cycle, though like it's COVID time, but any improvement on the approval cycles for Brazilian market?

Yes. No approvals. Mostly, I mean, is 1 to 2.5 years, so things are on track. So we haven't seen a slowdown in terms of the regulatory agencies. In fact if those 2 work well and overall, I would say, the environment for doing business in Brazil from the regulator side, from the tax side, everything will become better over time. So no major, I would say, things holding us back, the level of transparency and the ease of organizing new things and asking questions is becoming something which is on par with what we see in other developed countries. And things -- we expect generally -- at least on the branded generic side about 3 to 4 launches every year, which would be enough for us to maintain the momentum. And then our next project, I mean, how would advertise We would see later as to how when we'll expand our presence in terms of repos. But for now, we are pretty optimistic about the forecast as a whole.

[Operator Instructions] The next question is from the line of Shyam Srinivasan from Goldman Sachs.

Just the first 1 on the entire branded generic portfolio across geographies. I just want to understand how is the pricing environment now while COVID kind of normalizes? We have historically taken some bit of inflation in terms of prices. So if you could just share the outlook for India and other places where from a branded generics and the pricing perspective?

So for the India market, the price component of growth has been in the range of 6% to 7%, which we believe should be sustainable for the next few years. No real change in that, that we anticipate.

Sudhir, you want to talk about Brazil?

Yes. So on the Brazilian side, also, the price increase is like U.S. and Germany in Brazil, every year, we get a price increase in April time frame. Prices increases are usually in the range of 4% to 5%, and it continues to be the case in most of our product that is Although for certain based on the competitive dynamics, we might choose to take lower on that It's something that we should expect in the current macroeconomic scenario.

Got it. And just a related question on -- from a competitive standpoint, do you think the 6% to 7% in India or the 4% to 5% in Brazil...

More or less similar, I would say, a little bit less Whereas in countries like Mexico, et cetera, you can also take price increases on an annualized basis based on what your competitors are doing. So I would say this is very different from GG in that way.

Got it. And just curious to know, from a competitive dynamic, 6% to 7%, say, in India, you think you're still within where the competitors are from a prescription perspective, and there is no usage that from an affordability point, the missing out on prescription?

No, no, no. Absolutely, not. Absolutely not. We would be well within the competitive range of all the top -- near our ranking, all would be within our similar price range.

Got it. Second question is just on the -- I think you spoke about gross margin. Just on EBITDA margins, how should we look at, say, fiscal '22, several moving parts, I understand. And also the linking question is on R&D. Are we now going back -- is the fourth quarter run rate of about 7.5%, is that what we should look forward to for next year?

No, I think it's a difficult question since the whole second wave has started and a lot of restrictions, partial restrictions and lockdowns which we are seeing. So I think we'll have to wait for quarter 1 to really start talking about these 2 parameters.

Okay. But R&D is something that you control, right? So do you think that is something that steps up or...

No. R&D, I think, for the full year, I mean, I think a normal year, I would say, '21, '22 should be anywhere between 6% or 6.5%.

The next question is from the line of Sriraam Rathi from ICICI Securities.

I have 3 questions. Firstly, on the U.S. sales, I mean U.S. -- our U.S. sales have dropped from $50 million to $37 million now. I mean, what's so I mean are we like thinking that we are already on the bottom side and from here it should move up or I mean -- or we can expect some price erosion again bring it lower?

Isha, I think Sanjay got disconnected. Can you connect him again?

Yes, I've dialed already.

Okay.

Sir, so my question was basically on the U.S. sales, like our run rate has come down from $50 million to $37 million now. How should we look at this number going forward? I mean, from here on, should we expect some launches to bring up the sales or the prices will continue to impact the sales?

I mean, we have a few launches coming from the sources, which I had identified. So you'll be starting with the Levittown sales from June onwards. We have currently a court case going on, on a major product called Tapson. So we expect a judgment from the courts anytime. And depending upon the legal outcomes, we might decide to launch that product. It could be an important launch for this year. And then thirdly, so I would say that we've capped some approval pending from our external partners products. So my guidance going forward would be that we should expect -- in a good environment, we should expect at least stability if not a slight positive momentum. But hard to predict how the price erosion takes place, how the competition impacts our current portfolio because we are majority 90 -- 99%, 98% of our sales is base business. So base business gets impacted just like that for other companies. So there are a few positive wins, and they can help us compensate for normal price erosion. But beyond that, it's hard for me to predict that.

Okay. Got it. And one I just want to take on the tax rate. Our guidance was that, I mean, it should be around 22% to 25%. This seems to be lower at around 18%. So how should we expect going forward?

No, I think that's the number you should work on, 22% to 25% for the next year.

The next question is from the line of Vibha Ravi from Grip Capital.

Hello, can you hear me?

Yes. And you are audible, you can go ahead.

Okay. So I just wanted to know, in the beginning, you said that there would be some -- there was some talk on for strengthening the COVID portfolio. Could you elaborate on that a little bit, please?

So we've already entered into an agreement with Lilly for baricitinib and similar talks are ongoing. So hopefully, over the next few weeks, we should be able to have a few more products with us, which would be the for COVID treatments. So that's all we can share at this point.

Okay. No names or anything concrete that you can discuss right now?

It would be confidential, hence, unfortunately not.

The next question is from the line of Prakash Agarwal from Axis Capital.

Sir, just on this part of business, that all seems have declined more so quarter-on-quarter also Y-o-Y also? I mean, is there any specific reason and expect it to come back to the...

Yes, Prakash, I think it will come back. This quarter, it's low basically because there was some revalidation which had advised us. So it's WIP. So anyway, the sales -- the stocks are there. The sales will start coming in quarter 1. So the sales is not lost from that perspective. And for the full year, there was some maintenance activity, which had happened earlier. And that's the reason why you see a low number. So I think anywhere around 85% to 90% should be the run rate which we should be looking at for this year.

How much, sir?

85% to 90% per quarter.

Okay. Okay. And how much of the Lilly business is there? I mean, it is 80%, 85% of the total reported others?

Lilly? No, I mean -- okay. You were talking about -- sorry.

Yes. Yes.

Right. So I think this quarter, it's lower by almost INR 25 crores, I would say.

Okay. Got it. Okay. And I think Sanjay spoke about stability coming back for the year. So I mean, the previous participant question of $50 million going to $37 million. So are we saying that second half onwards, we'll be able to see around $50 million run rate again? Or are we saying that this $30 million, $35 million will stop eroding?

What we are saying is that it's hard to predict the U.S. business, you have negative drivers in terms of price erosion, but we also have a few positive drivers in terms of restart of Levittown in terms of new launches from external partners and in terms of our portfolio, which is coming on stream. So all in all, net-net, hopefully, there is a slight stability positive momentum from $37 million.

Okay. And Levittown was about $9 million, $10 million sales, if I'm not wrong, analyzed?

Yes. Prior to cessation of production, it was about $14 million.

Okay. Okay. Expected to revise?

Yes, over a period of time.

Understood. Okay. And from the cost side, just 1 clarification. So as you mentioned, costs have started to come back, but not to that extent, would we say that moving into Q1, Q2 where we had a full lockdown scenario and since the activities have come back much more than what it was despite the current lockdown, cost will be marginally higher or it would be substantially higher?

In quarter 4?

No, no, on the upcoming quarters, first half of the year, where we saw total lockdown last year?

Yes. Yes, Prakash, I think it's better to wait for quarter 1 and start talking about it because I think it's too premature to start talking about the expense level.

So my question, actually, I mean, if you see the down level, it will be -- there are pockets where full lockdown that we saw last year. I'm just trying to get a sense that what activity levels today versus what it was last year?

No. I mean, so in terms of activity levels, our all India field force has been working from home. So obviously, the travel expenses for this month and for -- however long this would continue, the travel expenses would not be there, and some of the physical activity spend will not be there. So that part could be a permanent saving for the year. But apart from that, how it turns out, it's still too early to say.

The next question is from the line of Anmol from JM Holdings.

So my first question is slight detailing on some of the cost drivers. I know, Suresh, you said that it's too early to talk about them in Q1. But directionally, in a post COVID world, how do you see these cost structures evolve, given that some activities are now clearly going to be less off and some things like digital, et cetera, you're going to have to do more of. So if you can just give us some directional color on some of the cost drivers that evolve in a post COVID world? And how you're looking about them forecasting them, that will be helpful.

No, no. Anmol, I think saying is if COVID was not there and all the costs would come back, right? I mean what we are saying is quarter 1 is also getting impacted because of certain restrictions and lockdown partial lockdowns, I mean, it will not be right for me to give you any guidance. So I think the correct way to look at it is that pre COVID, what was the level of expenses, which was there and consider kind of an inflation on those expenses and that could be the basis if 100% COVID is not there.

No, I get that, Sudhir. What I'm trying to understand is that in a post-COVID world, there are things which could probably see a more permanent change, for example, will doctors be willing to see...

Anmol, really speaking, there would be some cost efficiency, but that would not be very significant. So our expectation is that if COVID is not there, most of the physical meetings will start happening again. And I think a significant part of the cost will come back.

Okay. That's helpful. My second question is around the U.S. business. First is, obviously, have you heard anything from the regulator during the quarter, which is significant, which you'd like to kind of flag off?

No. So -- I think I said we have not heard anything. So we have no updates to provide in terms of guidance from the regulator when they would do either a virtual inspection or an in-personal inspection.

But any sense on the fact that now virtual inspection guidelines, et cetera, how is it -- any sense you have around what time it could be or your guess would be as good as mine?

Yes, no. So we've been pushing, but let's say that it's more of a push from our side. And I don't know where we fit into the FDA's current priorities in the COVID environment. So it's hard for us to kind of speak for them.

Yes. And my last question on the U.S. business. So obviously, $37 million is the bottom end of the range, and we do expect it to kind of revert. But even at around $200 million, give or take, $5 million, $10 million, it is not really a scale business, given our size of profitability and ambition and aspiration. So over a 2-, 3-year time frame, how are we looking at the business kind of happy having, you need to augment it inorganically, what are some of the thoughts around that? And you spoke about some positive catalysts in the U.S. business. But anything material to kind of hold a 2-, 3-year time frame move this number materially higher from where we are?

So the number is any suboptimal, right? So for Torrent, the U.S. business presents, I would say, 15% or lower overall revenue, which is clearly not where it needs to be in terms of an overall company profile. The U.S. market is more than 50% of the world market. So potentially, we are below index by any standards. And there are at least 5 Indian companies or 6 that are doing more than $1 billion in U.S. revenue. And it's clear to say we would aspire to be amongst them rather than we are right now. So directionally, we are clear with what ambitions we have and how do we want to go about building this business. We seem to be caught in a negative spiral right now, but it's not going to last, right? So when you say 2 to 3 years, we expect to break out of it. I mean, just a simple indication last year, again, we filed 12 ANDAs, which is in line with the previous year, where we had filed about 11. So the filings continue. These filings are complex filing. There are good filings. We expect to get approvals, if not for site issues. So I mean, I would say, medium term, the ambition would be to grow on that last page that we had about $200 million and to try to grow with launching 10 ANDAs and 15 ANDAs every year, which would compensate for the price declines, but also lead to a positive momentum. So -- but hard to pinpoint a number, right, in the current situation where we seem to be stuck in a logjam. And even if you take our products with CMOs, where the timing of launch, the first wave you missed, right, because you're not able to launch on the market opens. And then later on, you will come with the CMO product, where probably the cost of goods is a little higher than what you would have at in-house. So I would not like to go to numbers, but directionally, I agree with you that this is not where we need to be, and this is not where we are happy to be and we're doing everything in our power to try to change it quickly. But I cannot give you a number for 2, 3 years down the line.

The next question is from the line of Raja Kumar V, an individual investor.

So I have 2 questions. The first one is I just want to know -- I mean, I heard that the vitamin -- kind of the vitamin sales because of the COVID situation in India has kind of gone up because of people want to improve the immunity and all that. So I just wonder, is it something which is just related to COVID? Or do you see structurally this sales becoming sticky as the awareness among the public will kind of increase? And I want to know how much is the portfolio of vitamins and OTC as a percentage of your total India sales? And the second question is given the COVID situation, I mean, I want to know whether you were September, December quarters, is it fair to assume that those 2 quarters will be much better than your June quarters?

So the first question, the vitamins and immunity related demand has certainly gone up either as a result of COVID or as a preventive. So that has been observed in the April industry numbers as well. So this should continue for at least a year or so, if not more. And in terms of Torrent, the largest exposure we have to this segment is through Shelcal and the extensions of Shelcal. Apart from that, we have some smaller brands, but that would be the main part of the portfolio. And can you repeat the second question? Sorry, I couldn't grasp exactly.

Yes. The second question is, given the current quarter, the sales are also skewed towards the COVID portfolio where Torrent have -- doesn't have much from a percentage standpoint. Is it fair to assume that the September, December quarter, so the India sales numbers will be better than the June quarters?

Hard to say at this point, exactly. It will all depend on the external situation and COVID environment over the next 3 quarters.

No, my question is if things stabilize in this quarter, if we come out of COVID successfully, so is it fair to assume that September and December quarters because given the portfolio is skew towards the non-COVID, that is...

Sure. Okay. Okay. So no, in that sense, yes, because, obviously, as of now, there has been more attention of the health care system diverted to COVID and COVID treatment. So in that process, the regular treatments would have been on hold or postponed. So by that time, particularly in the chronic space, the demand should have been -- presuming that everything is normalized by H2.

Okay. Sir, if you permit, just 1 more question, given that we have a significant MR strength and given the low penetration of health care and rural areas, I just want to know, would Torrent be using this opportunity to create more awareness and also kind of leveraging the sales potential?

Yes. So our -- bulk of our portfolio is focused on specialists, which has 100% coverage. So it's essentially the subchronic and acute part of a portfolio, which would be relevant for this type of expansion. As of now, we feel that there is significant scope within our coverage to go further from here increase awareness. But at some point in the future, this would certainly be an important priority for us as well.

The next question is from the line of Ranvir Singh from Sunid Securities.

A couple of them. In India business, that MR productivity currently 8.5 lakhs. Do we see this productivity going to increase from here or after that integration of portfolio, this should mature here or we are still here?

So we had mentioned our goal of reaching 10 lakh productivity, which should be possible in the near future. And that should be the base, so to say. So we would possibly also we look at expansion. After that, based on the portfolio and not from any other objectives, so as the breadth of our portfolio increases, that's when we would be looking at expansion.

Okay. And secondly, on working capital front, you see the inventory days has increased -- overall working capital cycle has increased. Do you see going forward that, that will increase further? Or we should assume this model at this level?

So that was a conscious decision taken when the whole COVID situation started last year to ramp up the inventory. So there's no disruption as far as supply is concerned. So it will start normalizing from this quarter. So maybe by 31st December this year, you'll see a normalized level of working capital.

And normalized would be like 100 days of inventory? How is the normal?

Yes, I think so, between 90 to 100 days is what we try and target here.

Okay. Okay. And for CapEx, if you -- what was the CapEx in FY '21? And if you could guide for to FY '22?

FY '22, I think we're looking at a normal CapEx between INR 250 crores to INR 300 crores, which is maintenance CapEx. There's no expansion CapEx, which is going to happen. And for FY '21, we've incurred INR 300 crores.

The next question is from the line of [indiscernible] from AMBIT Asset Management.

All my questions have been answered. Thank you.

The next question is from the line of Nikhil Mathur from AMBIT Capital.

So my question is on the absolute cost number over the last 3 years, FY '19, '20 and '21. On an absolute basis, this number hasn't moved, it has kind of remained put at around INR 1,400 crores. So can you help me please understand how much of this flat cost base on the employee cost front has been achieved by a headcount reduction? And what has been the blended average annual competition migrate across the company?

So I think the annual compensation increase year-on-year will vary, right? I mean, because there are a lot of factors which are being considered. But I think if you look at our long-term period, maybe 5 years, 6 years, I think the employee cost would have gone up by maybe 8% to 10% on a consolidated basis, I would say. More in the range of 8%, I would say, on a consolidated basis. I think the other expenses, that you're referring to, the normal growth rate over a long period of time, maybe 5 years, we should say it should be around 7% to 8%. I mean that's a normal way of looking at it.

Okay. Sir, just the clarification here. Over the last 2 years, whatever control has happened it has happened more from headcount reduction and less from lower compensation hike. Would it be fair assume?

No. So you're talking only with respect to the employee cost, is it?

Benefit expense, yes.

Yes. Yes. So I think, yes, I mean for the last 2 years, a good amount of rationalization has happened. So that could be one of the major reason why it's remaining same.

Okay. And apart from MRs, I mean, you clearly laid out that at the time which is INR 10 lakhs, there is not need to add MR. But in normal course, would there be addition to employee addition in other businesses, whether it's in U.S., international market, plant operations, anything over there?

So Aman, you want to talk about expansion in India?

No, I'm just in which...

His question is more about international business, if I understood correctly.

No, no. What I'm trying to understand is that going forward, while MR count would not go up till the time PCPM 10 is achieved, but ex of medical reps, would there be headcount increase in any other business lines, whether manufacturing, whether international or patients sales, anything else?

So, I think it's a very wide question. So as far as international businesses are concerned, I would say there's no manufacturing facility, except what is there in the U.S. So there's no addition -- major addition, which we see the international geographies in terms of manpower, ex of the field. As far as India is concerned, I mean, yes, over the next 3 years, possibly, if there's an expansion CapEx happening, there would be increase in manpower, right?

Okay, but not imminently in Slide 22, given that the CapEx is largely maintenance CapEx?

Absolutely. Absolutely.

We take the last question from Alok Dalal from CLSA.

So 1 question on OTC. In the last few quarters, you had mentioned about revisiting your OTC strategy for Unienzyme. Any update on that?

No, I don't think we had mentioned anything of this sort. But certainly, in this current situation, many of these brands, which have OTC potential have gained significantly due to either preventive or co-prescriptions, that includes Unienzyme, Shelcal, Vizylac?

Okay. But specifically on OTC, Unienzyme is currently the key OTC product in the portfolio?

We don't have any OTC promotion at the moment. If you recall, we had discontinued OTC promotions about 2 or 3 years ago. Unienzyme was moved completely into Rx.

Okay. Got it. And just another question was about -- so historically, if you see Torrent has been focused on protecting margin. Now is there a case there you can let go of some of these high-margin but that should help you accelerate your top line growth? Is there such a thought process? And if yes, then how do you achieve that?

So the future acceleration, I would say, I mean, as of now, we are still yet to fully utilize the potential of the field force, so to say. Coverage is still quite high in that sense. But I would imagine that it would be more focused on the subchronic and acute therapies where we would be able to expand our reach significantly. But still, it doesn't require it immediately. We feel there is enough scope for market share increase with the current coverage.

That was the last question. I would now like to hand the conference over to the management for closing comments.

Yes. Thank you all for joining Torrent's quarter 4 earnings call. And if any incremental questions are there, please get back to me or Sapan. Thank you.

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