Torrent Pharmaceuticals Limited (500420) Earnings Call Transcript & Summary

Ladies and gentlemen, good day And welcome to Torrent Pharma Limited Q3 FY'21 Earnings Conference Call. [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, Mr. Menon.

Thank you, Nirav. Good evening, and welcome to quarter 3 FY'22 earnings call of Torrent Pharma. Very quickly, the financial performance highlights during the quarter is as follows: The revenues were INR 2,108 crores, up by 6% on Y-o-Y basis. EBITDA was at INR 585 crores, down by 5% on a Y-o-Y basis. The profit before tax was at INR 357 crores, same as a corresponding quarter in the previous year. Net profit after tax was at INR 249 crores, which is down by 16%, essentially because of the tax change, which has happened during the year. Profitability for the quarter was impacted due to higher-than-anticipated price erosion in the U.S.-based business, coupled with under absorption of a certain amount of plant overheads and certain one-offs which have come during the quarter. We have rolled out cost optimization initiatives and we are confident to revise the margins in the shortest possible time. Today, the Board of Directors have recommended an interim dividend of INR 25 per equity share. I would now hand over the call to Aman to take us through the India business performance during the quarter.

Thanks, Sudhir. India revenues at INR 1,072 crores grew by 15% versus the market growth of 6%. And even after the AIOCD data, Torrent's growth for Q3 was 15%. Growth was driven by robust performance of top brands in all our focused therapies. PCPM for the quarter was INR 9.9 lakhs with an MR strength 3,600. Torrent continues to focus on brand building and specialty approach and has 16 brands in the top 500 of the IPM with 11 brands more than INR 100 crores sales as of March, December 21. I'll now hand over to Mr. Sanjay Gupta for the International business.

So I'd like to start with Brazil. Brazil Q3 sales were about BRL 135 million, up by 8%. Year-to-date sales in Brazil were about BRL 353 million, up by 13%. Growth was aided by market growth together with performance of top brands and new launches. During the quarter, Torrent has launched a new division in the CNS segment. Further, Torrent has recently launched Rivaroxaban, which has a market size of about BRL 800 million, which is the largest market in which we would participate in Brazil. With resilience and market growth and launch of a new division, we expect continued strong momentum in Brazil growth. Moving on to Germany, Germany sales were at EUR 28 million, down by 6% on a year-on-year basis. The market growth in Germany continues to be muted for the calendar year 2021, by a market rate essentially at 0% growth. The tender segment is also witnessing increased amount of competition. For the U.S. sales were $31 million, down by 21% on a year-on-year basis. Sales were lower due to price erosion in the base business and lack of new approvals pending reinspection of facilities. The manufacturing facility at Levittown U.S. was inspected by the USFDA during December 2021, and they do not give any observations. As of December 31, 2021, 51 ANDAs are pending approval with USFDA and 7 tentative approvals were received. 2 ANDAs were approved during the quarter. I would like to conclude by highlighting that the growth momentum continues in branded generic markets, including in our India business. Delay in reinspection of U.S.. Facilities, together with price erosion in certain one-off have adversely affected the U.S. business. We. business are confident that the cost optimization measured initiated during the quarter would aid us in regarding margins in the coming quarters. Nirav, we can open the call to questions now.

[Operator Instructions] The first question is from the line of Tushar Manudhane from Motilal Oswal.

You alluded to certain one-offs during the quarter. On the U.S. business in specific or on the overall business? Can you quantify that?

Yes. So when I said one-off, Tushar, there are 2 or 3 items I would like to highlight. So number one, during the quarter versus quarter 2, there has been an increase in the freight expenses almost by 1%, I would say. This is something which has happened because of this whole Omicron surge-related disruptions, which has happened, which we feel should come back in a quarter or 2. So that's something which has happened this quarter, around 1% impact. The other 1% impact is there were certain failure to supply provisions we made again for the U.S. business on one of the products where we had contracts and we decided to discontinue that particular product. So that is another 1%. And what actually happened this quarter is that the actual manufacturing volumes were much lower than what was planned, which led to under absorption of overheads, which has impacted the margin by almost 1%. So all in all, 3% is something we believe that it's a one-off for this quarter and we should come back in a quarter or 2. That's the one-off, which I was talking about.

Got it. And with respect to the failure to supply, basically, those product economic viability was much lower. It seems that it was better off to take provision for failure to supply rather than supplying the product? Was that -- I mean is that the logic for this?

No, not really, Tushar. Tushar, we had some issues with respect to this product availability. And therefore, we decided to discontinue. In that process, certain contracts which were there had to be canceled. And therefore, we've made provisions of failure to supply, assuming that this would come and hit the P&L.

Understood. And just lastly, with this run rate and given the lack of approval basis, the inspection not happening. So this can be a sustainable run rate to go by or you see further headwinds from the U.S. business in particular?

Yes. Sanjay, you want to take that?

Yes, sure. So generally, I mean until we get new approval, we would expect the share of the U.S. business and Torrent revenues to continue to decline. We have a few set of approvals expected in Q4. I would say the biggest among them is Dapsone, which is a dermatology product, roughly about $135 million with 2 players. So if that approval comes through as expected on February 18, that would provide a boost to top line. But other than that, the bigger boost we will have to wait for the plant inspections to happen, right? So because we have about more than 50 waiting for approval out of which about 27 have nothing, no pending issues, except facility clarity.

Can you just rename the product? I missed the name of the product.

The one we expect on February the 18 is the Dapsone. D-A-P-S-O-N-E. It's a derma products.

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

My question is like all the three things that you said, which is about a percentage, each is part of gross -- impact of gross margins? Would that be correct?

No, no. So only 1%, which is under -- no, I think all of them are basically middle line, Prakash.

No. So because I see two things happening, right? So one is your gross margins have gone down. That is one. Second is your other expenses has also gone up. So which is sitting there because there is clearly 200 to 300 basis point mix on the gross margin and about 500 basis points lower in EBITDA. So could you just help us understand -- I mean gross margin could be this -- the under absorption that you spoke about and provision of U.S. supplies, so 2% and freight will be part of other expenses, right?

Absolutely. So freight and failure to supply provision is in the middle line. As far as under absorption of overhead is concerned. Again, I would say some part would be in the middle line and some part would be in the gross margin because essentially, I think the inventory valuation, which happens along with material costs and overheads. So I would say 2.1% in gross margin is surely because of the price erosion, which has happened in the U.S. out of the 2.4% lower gross margin compared to quarter 2, and the rest would be, I would say, the under absorption of overheads.

Okay. And this other expenses, even if we add back base, still it is on the higher side. So what do you think is a sustainable number for this piece?

No. So I think 2% is what I said, right? I mean, definitely, let's say, 2%, 2.3%, 2.4% is definitely what we spoke about as onetime, which will get corrected over a period of time. There's no problem from that perspective. In addition to that, I think there's an increase in R&D spend by INR 10 crores. So I think to that extent, here and there should be fine. So definitely 2.2%, 2.3% should get reversed from the other expenses is what I believe. The other is plus/minus INR 10 crores here and there, Prakash.

Okay. And this you're saying would be like Q4 phenomena? Or will it take a couple of quarters to reverse?

So definitely, Q1, I feel I'm very positive is what I can say. But quarter 4, we should see something happening. I mean I'm not too sure about it. But definitely, quarter 1, we should see these things happening.

Perfect. And my second question, sir, is on the India business, so very strong growth. How are we seeing in terms of new launches in terms of any big launches that we anticipate for next year, especially in diabetes, et cetera? And where are we in terms of new launches for next year?

Yes. So in Q3, we've had about 10 new launches. Some of those would be combination and extensions. Some would be in sizable markets. So the opportunity would be fairly large. And Q4 also we plan to launch around 10. Out of that 10, we've already launched 2, one of them being [indiscernible], which is a large opportunity. And second is molnupiravir.

Yes. And any growth expectation for next year?

So if we look at Q4, at least right now, what we hope is that the IPM growth, which is at 6% in Q3 that should increase sequentially. So upwards of maybe 9%, 10% is what the IPM hopefully should deliver. And we are confident of maintaining this growth from rate higher than the market. Next year, of course, there has been a base effect in Q1. So growth reported may not be as high, but underlying growth, we believe, should continue at 10% of the broader market. And our growth should be higher than that as for this quarter.

The next question is from the line of Sriraam Rathi from BNP Paribas.

Just two questions. One on the gross margin. So gross margin is down by almost 2 to 3 percentage points on Q-o-Q or Y-o-Y basis. I think one reason, of course, is the U.S. generic pressure, but -- and there are actually something more to that, right? I mean what exactly would have been the reason for this?

No, Sriraam, the net gross versus quarter 2, if we look at it is around 2.4%, of which we are saying 2.1% is because of the price erosion, which has happened in the U.S. So almost 19% price erosion we've seen this quarter happening versus quarter 2 not on Y-o-Y. So that's the major component. And as I said, some portion of the under absorption, which has happened. So that effectively talks about that 2.4%.

So how should we look at this number going forward? I mean because if U.S. continues to input pressure, so...

No, Absolutely. Yes, I think that's a good question, actually. So U.S. price erosion is something which will remain, right, at least for quarter 4. The way I look at from next year's perspective, is that the recovery would definitely happen in terms of the price increases, which we will be taking on the branded generic piece. That's something which for sure is going to happen as far as branded piece is concerned and I think as a portfolio, the share of the total revenue, 65% is branded generic businesses. So if you calculate back of the envelope, I think 1% to 1.2% of which should get offset with these price increases, which will come in branded generic prices is what I believe. Plus what we also expect is with the U.S. business the U.S. FDA inspection is happening next year. There are a few launches, which can start happening next year. Not all the products would be giving a better margin or a higher realization, but there would be some products which would give, that's point number two. And point number three is there's already a few products from the ER&D, the external R&D pipeline which would start coming in actually for the next year. And we don't see problems for those products coming in. And those could also help in pushing up the margin. So all in all, I personally believe that most of this drop, which has happened in quarter 2 -- quarter 3 in the gross margin should come back in the next year.

Okay. Got it. And secondly, on SG&A expenses, I mean, of course, there is a significant increase, almost -- I mean, 15% to 20% increase in absolute amount, is been the reason for that. So I mean like we were doing INR 350 crores to INR 370 crores kind of expense every quarter. So from Q1, assuming that rate cost normalizes, should we be back to that kind of number? Or it will be on the higher side?

Right. So there are two main impact items, Sriraam. So as I said, 1% is because of that freight, right, which is 1% of the revenue is INR 21 crores. So out of INR 54,221 is contributed by this incremental trade which has come in. So that should normalize is what I said at quarter 3 next year. The other impact, which I said 1% has been the failure to supply provisions which we made in quarter 3, right? So another 1%, that's also 21%. That should also come back. I mean that should. That impact should not be there in the future quarters. So all in all, if I put these 2 items together, then we are talking about a INR 42 crores, right? So INR 542 becomes INR 500 against an average of 490, which we were clocking in the previous quarters. So INR 490, 500 , 505, I should -- I think that should be the base number on which, next year, I believe at least 8% to 9% increase is something I would take on a normal basis.

The next question is from the line of Damayanti from HSBC.

Sir, my question is again on gross margin. So you explained a majority of decline is due to the price erosion parts, how about decline due to raw material price increase? And how do you see this part for next few quarters, the raw material price inflation?

No, Damayanti, you're right, actually. So I think the drop in margin, which was explained was versus quarter 2. So if you ask me whether the raw material prices has further gone up in quarter 3 versus quarter 2, maybe not. And I don't see that kind of an impact. But yes, I mean during the year, we have seen some increase in prices, both API and inactive raw material and some open active raw material, almost 50% price hike we've seen. So as a portfolio, since we are more focused on the chronic segment and the dependency on China factor is quite low from that perspective because I think most of the price increases we've seen on the acute side, not on the chronic side. But I mean, if I look at it from an overall perspective, yes, I mean, the gross margin could have got impacted by 0.8% to 1% that's there in quarter 2 as well as quarter 3, I would say.

Okay. So sequentially, we haven't seen additional, I'll say, impact of this raw material price inflation. You said 0.8% to 1% on a Y-o-Y basis, right?

For the year-on-year, y-o-Y.

Okay. Okay. That helps. And my second question is, do you have any visibility on time line for FDA inspection of the pending issues at Dahej and Indrad. And what about the supply situation from Levittown plant?

So actually, we don't have any visibility on inspection of price in Indrad. So the supply situation from Levittown is by the March of 2023, we should have about 10 products on the market. So -- and then on the way to generate about -- between, say, $6 million to $10 million of annual revenue.

Sorry, sir, I just missed. So by fourth quarter, you should -- we should be going back to the $8 million to $10 million kind of run rate from the Levittown plant?

Correct with about 10 products on the market.

The next question is from the line of Neha from Bank of America.

I have two questions. First, in your opening remarks, you mentioned cost optimization steps that you would plan to take. If you could just give us some color on what these would be. And my second question if I remember correctly, we'd indicated that we could potentially look at investing back in India to increase our sales force. By when should we expect that? Or do you think we can support growth in the India business with the current sales force?

Neha, I'll take the first question and then probably I'll give the second one to Aman to answer. So when we spoke about cost optimization, that was more in terms of the plant overhead where we've done some amount of work on that. And what we are doing is that we are trying to maximize the volumes at one particular plant. And as far as the other plant is concerned, we are trying to cut down on the shift for that particular plan. And the whole process also optimize the volumes for different geographies in such a way that at least some part of the plant overhead can be optimized. That's what we said that the cost optimization measures have already been undertaken. So that's something which you'll start seeing as far as gross margin is concerned, definitely from quarter 1 of next year.

Yes. So for the India field strength and expansion. So we would be undertaking some level of expansion during this quarter, which has been initiated already. I would say about half of the total plan would be implemented by end of Q4 and the second half would be probably by the end of H1. Looking at something about between 400 to 500 reps addition to the current field force.

So in which case, there would be some additional cost pressures that we will see because of this field force addition, right? So that would be an incremental expense over and above. Some of the price increase will be by the higher employee cost that we could see. So, is that the right way to look at it?

Sorry, Neha, can you repeat your question?

So the 400, 500 additional people would increase our employee cost, which would be another cost headwind -- a margin headwind for next year. And therefore, the price increase that we would see in India would partly get offset by this cost increase. Is that the right way to look at it?

It's a logical way to think. But the other thing which I have been talking about is that on an overall basis, you'll see the operating leverage kick in, right, because the top line would be pretty much faster than the middle line. So yes, to a certain extent, it's a logical thinking that the price increases will help in offsetting this particular expense, which will not be substantial, Neha. It should be less than maybe 0.5% I would say. Other expenses also playing out with the operating leverage kicking in. So I think on an overall basis, it should not be a major impact on the overall margins, which should get offset against the incremental benefit, which is going to come.

Expenses tend to be more gradual when it comes to Q4's expansion. So over maybe a 9-, 10-month period, would it be really in full implementation rather than upfront.

The next question is from the line of Abdul Puranwala from Elara Capital.

Sir, just would you be able to provide the breakup of the 51 ANDAs which are pending with the USFDA? I mean as to how much would be filed from Dahej and Indrad? And how much would be third party in these?

So the exact number we won't be able to provide, but majority of them are from Dahej and Indrad. So I mentioned about out of these 27 have nothing pending except the facility, right? So we should expect those approvals in quick speed after the inspection. So generally, the time frame from the FDA, if you can assume that inspection takes place in month 1, you would get the EIR, if everything goes well in about 4 months. And then normal time frame for FDA is about 90 days after the EIR to start approving pending ANDA. So I mean, if inspection takes place next month, 8 months after that, you can expect October-November time frame, products to start getting approved.

And sir, my next question was on Germany. I mean we saw last quarter in Q2 as well, we have put a close to 4% decline this quarter. Again, we are facing some headwind. So going ahead, how should we view this business, especially on the tender side. And what is your kind of growth we should build up for next year, if you could anticipate from that front?

So last 6, 7 quarters, we've seen sales vary in the range of between EUR 28 million to EUR 30 million per quarter. So it's been kind of stagnant -- I mean the delta is very little, it's usually in the range between EUR 28 million and EUR 30 Million. And there are two types of factors behind this. One is I would call more market-related factors and one is Torrent specific factors. So market-related factor is overall the market has been flat. So you see German market used to grow between 2% and 3%. So that has not happened in 2021, we saw 0. Second market-related factors is we've seen new players come in and some kind of price erosion. So over the last 1 year, I've seen about 7% price erosion. So it's not yet in the U.S. but it is becoming like more competitive and more price sensitive in Germany. So -- but on a Torrent specific factor, we've noticed two or three things: One is we've lost a few tenders. So because of the pricing pressure, we've lost a few tenders and also where we have won tenders and 2 or 3 player markets, we've not been able to convert our market share effectively. So the step we are taking is more -- we've done a cost optimization exercise so that we can be more aggressive in the forthcoming tenders. And also, we've kind of worked with the channel and the wholesalers and the pharmacists to increase the attractiveness of the Torrent products to them so that we can get the better market share, where we win tenders. So unfortunately, the next series of tenders will not really come before October. So I don't expect any short-term turnaround in the next quarter or 2. But as new tenders come up, we would be well placed to win either more share in them as compared to the recent past. So that's how we are planning to remediate.

[Operator Instructions] The next question is from the line of Anubhav Aggarwal from Credit Suisse.

First question just trying to understand the U.S. price erosion at 19%. So we had quarterly sales of 35% because of that. So if -- now this is a portfolio average. So this implies in some products, we should have seen erosion of 40%, 50% as well. And we are not a company where we have a very high product concentration, so just trying to understand the 40%, 50% erosion in certain products. Is that permanent? Or was it like some companies were having inventories, they've dumped it and this was one-off pricing was hike that become a new pricing? Can you explain the background of what is very high price erosion?

Yes. So one of the -- I think I remember, I think, yes -- you go on, Sanjay.

Correct. So actually, just to highlight what are the products behind this, right? So number one product that is responsible is a product called Nebivolol. So Nebivolol is something that we have had approval for a long time. And we launched it in last quarter, and it was essentially a 4-player market with good pricing. In the end of December, middle of December, we had some 2 additional players come into the Nebivolol market and that actually brought down prices dramatically with some adjusting our stock adjustment to be paid to the customers. So as a result of which that was the number one factor. The second factor I would say is we have also launched one of the at a decent price. And then again, there were new players that came into the Olmesartan family of products out of which there was a dramatic price reduction. I would say, there have been a disproportionate price reduction on a few products, which has resulted in this happening.

Okay. So this is a new base, effectively.

Yes, Anubhav. I would say so.

And where have you been gaining volumes because 35% going to 31%. So you've been gaining volumes as well. Can you also mention the product where...

So on a portfolio basis, our volumes last 4 years have been between INR 375 crores and INR 400 crores. So we are still running at the same run rate. The mix change is the overall the size of the volume of the business has been fairly consistent.

A question on the U.S. business, which is exon. So just to understand it, you have a tentative approval and you have a settlement date, 18th of February, you can launch it without any -- it can work, right?

No, we -- the GDUFA date is on 18th of February. So we need the FDA approval on the 18th to be able to launch the product and we have the settlement in place, yes.

So don't you have a tentative approval on this. It is the exon 7.5%, right?

Correct. Yes, yes, exactly. We have a tentative approval, we expect the final approval on the GDUFA date.

Understood. Okay. And just -- and this is back to Sudhir, sir. So just trying to understand this rate increase. I do not follow this when you said that Omicron search-related disruption. Can you elaborate on this?

Yes. It's basically on the international freight. I mean in some of the pockets like Europe and Brazil, we saw the prices, I mean, the freight cost going up substantially, I would say. And that's because of the availability of space, on the air space, which was much, I would say, lower compared to quarter 2. There was some disruption we saw during quarter 3 in terms of the availability of space. And therefore, the airfreight shot up like anything.

And what you're seeing now? Has that somewhat moderated or still running very high?

No, it will moderate, Anubhav. That is the feedback which I'm getting internally in terms of our procurement guys talking to the -- reason we have. And we believe this should come back fast to the normative level, Anubhav.

And when you said the manufacturing volumes are lower in this quarter, what led to that lower manufacturing volume?

Yes. So it's basically -- I mean the change of product mix is, which has been happening for the U.S., I would say. So there was some plant which was moved in need in terms of maintaining some level of inventory and the product mix is changing because of the contracts. The new contracts coming in for some products and some products going off. And that caused a reworking and we saw that quarter 3, the manufacturing volume really came down and what we had planned in the beginning of the year.

Okay. And just last question for Aman, actually. So when you talk about 400, 500 physical expansion in India, can you also give some indications, what you -- where are you adding this people majority? Is it to your start therapies like cardiology, CNS, et cetera? Or are you adding them to the newer therapies that you want to grow, et cetera, is the objective to increase doctor coverage, et cetera? Can you just give some high level it there?

Yes, this would be predominantly for the existing focused therapies. So CVD, CNS, gastro and so on. And this would per division -- add up to maybe 30%, 40% increase per division in coverage with this instant. So the idea is to expand now that we've reached a fair level of market share within the covered universe, the idea is to go beyond the covered universe. That's where the expansion has been conceptualized.

Okay. So let's see, per division, you're almost starting a 30%, 40% increase. So are these guys -- are you really going to launch so many products in this division? Or you going to -- how are you going to make this guy’s productive?

No, it would be a mix of both. There would be new launches as well and also coverage expansion would -- I mean, it would be for the existing products as well. So let's say, in CP coverage, we will be not as high as some of the top players in this therapy. So we're trying to now catch up to that. But as in specialty coverage, our coverage is 100% in all specialties that we focus on.

The next question is from the line of Shyam Srinivasan from Goldman Sachs.

Just the first one on the India business. Can you give split out into growth of 15% into price, volume and new products? Just whatever the AIOCD equivalent that you quote?

Yes. So the AIOCD growth is 15%. Volume is 4.4%, price is 8% and new products is 3%.

Got it. So in the past, you've talked about maintaining this 8% price increase. And I think earlier in the call, you've spoken about similar increase in next year as well. So is there any impediments you think that could alter that scenario? Is volume growth sufficient enough for you to think that there is no demand issue?

No. I think this range should continue. Again, every year, we have to look at the competitive scenario. But within this range, plus minus 1%, 1.5%, I think, is something that we think should be sustainable.

Got it. And just one follow-up. Last on the India business is on the Trade Generics. How is it progressing? What is the contribution in the quarter? What are some of the dynamics you are noticing in this segment?

Yes. So we've stabilized at about 2% of total contribution to the India business now. This is based on the first phase of SKU launches, and we'll be planning an equal number of SKU launches sometime next year. So this 2% should hopefully increase in contribution as we go along by the end of next year. But this data is now stabilized and I think we've reached this level fairly quickly in a sustainable way.

Got it. Second question, and I can stop after that is on the R&D costs, right? So Q2, they have come off. I know year-over-year, they're up. But how should we look at this? And where are we filing some of our newer ANDAs and how do we manage it, given there are 2 plants in India are like under this one? So how should we look at that and R&D cost?

Shyam, I think R&D cost, I think at least for the next 1 or 2 years, should not be more than 6%, is what my guess is.

Okay. And your filing strategy?

Sorry, filings?

Filing strategy? Where are we filing the next products from?

No, no. So it will continue from Indrad and Dahej. There's some portion of the R&D, which anyway will continue every year. But the majority of in-house development, which is happening will be filed from Indrad and Dahej only.

[Operator Instructions] The next question is from the line of Kunal from Edelweiss Financial Service.

So since you mentioned it is very difficult to pinpoint when the ANDA will clear Indrad and Dahej plants. Have you made backup plans for high-value launches like Revlimid or are there any of the launches you have in the pipeline?

So for this particular product, it's not being manufactured at Torrent. So I can tell you that. And then for some of the other products where we have alternate sites in the plant. But I don't know -- I can't say more than that, but except that for certain high-value products, we have backup sites here.

Sure. Sir, could you just share your debt numbers at the end of Q3? And how much do you expect to pay down in the next 3 quarters?

So I think overall, in terms of repayments, we've done roughly INR 750 crores. And I think by March, we should be close to INR 900 crores in terms of repayment.

Sure, sir. And any sort of similar number should we expect in FY'23?

Yes, yes, yes. It should be around INR 900 crores to INR 1,000 crores, yes.

The next question is from the line of Aditya Khemka from InCred Asset Management.

Sanjay, sir, other than -- so you're also experiencing raw material price increase in Brazil as well as American products. So in Brazil, are we taking -- are you able to take price increases to set off the pricing -- to set off the raw material pressure?

So Aditya, in Brazil, we have annual price increases approved by the government in April of each year. So generally, price increases are divided into three categories of products. What you call the most competitive product, moderately competitive and then less competitive area. So just to give you an example, in April of 2021, the government allowed 10% for, I would say, very competitive products. 8.4% from Indian concentrated or maybe in competitive and 6.7% of highly concentrated projects. So that is -- and generally, most companies take these price increases. I mean, it might vary product to product base on the competitive scenario, but you can generally expect 6% to 8% price increases on average depending upon how your portfolio is split amongst a concentrated and not concentrated labs.

Understood. And for the U.S. market, I understand new product -- new production will obviously help you to overcome some margin pressures. But is there any scenario in which you envisage passing on the input cost pressure on a given product to its customers. So I'm alluding to price inflation in the U.S. generic market. Is that at all a possibility or that is completely ruled out?

I would not rule it out because at some point, it becomes unsustainable. So the choice before the manufacturer is either to discontinue the product or to pass on some price increases. We have seen that when faced with the uncertainty of supply of high-volume products, the customers are a little bit flexible, not very, but there's some degree of flexibility to secure supplies of high volume, I would say, products. So you can actually work with them and with some back and forth, that can be a small price increases to offset an increase in cost of input materials.

And would that be determined by the competitiveness volume or just the volume is enough?

I would say, I mean the competitiveness is always a factor, right? If they can get it cheaper from somewhere else and some other large, other liable suppliers are not willing to pass on the input price increases, that would be a factor in the decision making. But there comes a point when everybody is facing the same pressure. It's not a question of efficiency. In efficiency, it's just the cost question of decent material costs and what are you recovering over them. So I would say that there are several products where we do not -- I mean, we benchmark our costs and they were line with the best-in-class. So if we are facing the pressure, we can be pretty sure that others are facing also.

Got it. And sir, sorry, just a clarification on the Brazil response that you gave. So 6%, 8% and 10% was the last time the price increase that they gave to less mild intensely competitive products. This time around, is the expectation of a similar sort of thing? Or do you think given the raw material inflation, the ministry will be more conducive to a higher number?

So in all honestly, we don't know, but generally the factors that it is taken into consideration is the inflation rate and the exchange rate, right? Because Brazil board imports most of the APIs that go into the pharmaceutical manufacturing and the local inflation rate. So our expectation as of today, it would be fairly similar, right?

The next question is from the line of Anubhav Aggarwal from Credit Suisse.

Question to Aman. Aman, basically with this expansion of 400, 500 reps and assuming the portfolio grows by 10% plus next year. So do you think that productivity should be maintained around 10 lakhs level, right?

Yes, yes. That -- I mean, there may be temporary dip for maybe a quarter or 2, but overall level, this level of productivity should be in billion by the end of next year, I would say.

And how do you think -- can this be a more regular phenomenon for you? Like, for example, you can maintain this productivity at this level and keep -- whenever needed, keep expanding your sales force? Or is it -- this is -- I mean the road map is very clear for next year, but on a medium period, how you're thinking about this? When you would have done your analysis, what is the need -- have you done an analysis that by adding, let's say, right now, you're expanding 3%, 4% certain percent. But if you were to expand by 20%, 30%, you could get much higher growth, et cetera.

So it's a function of two things essentially. One is the increase in number of doctors every year. So I mean, since we haven't really expanded for quite some time, we were covering a very large amount. But that kind of natural expansion would need to happen. Second would be part of the portfolio when the new launch is coming in. So next couple of years, we anticipate a good number of launches similar to last year as well. So those two will be the key driving factors. Beyond that expanding, may not give the best results and that could dilute PCPM as well.

Okay. Very clear, Aman. Second question on this is just understanding question that when you look at your buyers today, for example, the organized pharmacy chain as well as, let's say including the pharmacy, what percentage of sales would they account today? Rough number.

Are we talking in India?

Yes. India.

So the organized change, including offline, online, would not be more than 5%, I think, give or take a few percent.

But your market share in the overall IP market is already double digit, right? So your share is much lower, is it?

Not really. It would be almost the same, particularly in chronic, it may be higher because chronic purchases on pharmacies tend to be higher. So I think it would be pretty much the same as in the overall IPM.

And then is your -- the margins that you offer to the other guys was -- that you offer to this guy, is there any difference in the offers of the margins to this guys?

No, no. It's all the same throughout for all distributors and retailers. There's no differentiation that we're doing.

[Operator Instructions] The next question is from the line of Nitin Agarwal from DAM Capital Advisors.

Sir, this is on the external R&D projects. Can you just give us a little bit more color on how many such projects are -- I mean, 3 or 4 things. One is say, how many such products have you filed so far? How many of these approvals you expecting over the next couple of years? And what is the pipeline that you're looking like over here?

Are you referring to a particular geography or overall?

For the U.S.

So for the U.S., in fact, the number of projects we have is about close to 50, and it's a diversified back kind of products, right? So there are products which are in dermatology, there are products which are oncology. And there is a series of potentially CBT products? And then there are some oral solids and liquids. So if I diversify basket. And our goal is, I mean, not so much linked to the number of ANDAs, so the number of ANDAs generally we used to do close to 50 to 20. Now we are doing somewhere closer to 10 per year. But the complexity and the cost of a per ANDA has gone up. So I mean we are doing products which, for example, in oncology, you have a new onco site which is coming on stream and we'll be filing the first 3 onco products in the coming year. We are doing products which require in patient studies, these study. So kind of expensive business to do. So the portfolio make evolving continuously and it's more trending towards, I would say, more expensive, more risky and projects -- with a smaller number of projects.

And I was trying to understand as which is on how many products filings that you've done so far are through partners?

Through partners, I would say, as of today, we have about 5 to 6 filings. So we have 3 products, which are approved, yes.

Yes. Okay. And how many do we expect approval for this year? To the extent, I guess, these approvals can potentially come through without FDA inspection hindrances?

We expect about 3 approvals in the coming year.

Okay. And lastly, as you sort of call out Dapsone launch in Q4. when you look to your launch -- potential launch calendar over the next, say, 4 to 6 quarters, how many such more -- such reasonably high-value approvals or rather launch you foresee?

So it's hard to predict, right? So it's based on a lot of factors. But generally, I would say, in a normal year, we should expect about low single-digit 3 to 4 such launch.

And sorry -- and will FY'23 qualify in your estimation to be such a normal year?

I think -- basically, that's what I was referring to.

Okay. Okay. And sorry. So going forward, how are you looking at this partnership -- how important is this partner for your incremental R&D filings? The pipeline going forward?

So everywhere we try to do, let's say, 3 to 5 projects. And in the areas of where Torrents doesn't have capabilities or infrastructure, so that is the kind of trend that we would continue.

[Operator Instructions] As there are no further questions, I will now hand the conference over to Mr. Sudhir Menon for closing comments.

Yes. Thank you, Nirav, and thank you, everyone, for joining Torrent's quarter 3 FY'22 call. If you have any follow-up questions, please feel free to contact me or second drop in a mail at our Investors services e-mail. Thank you.

Thank you very much. On behalf of Torrent Pharma Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.