Torrent Pharmaceuticals Limited (500420) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q3 FY '25 Earnings Conference Call of Torrent Pharma. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sudhir Menon, Chief Financial Officer and Executive Director, Finance. Thank you, and over to you, sir.

Thank you. Good evening, and welcome to the third quarter earnings call for FY '25. We continue to see strong performance in our branded market, which accounted for 76% of the overall revenues this quarter. India business growth for quarter 3 was 12% and on a YTD December basis, the growth is 13%. This quarter has the cost of 200 reps, which we've added. And on a YTD December basis, we've added 500 reps. Brazil constant currency growth for the quarter is 10% and on a YTD December basis, it's 12%. Brazil currency depreciation impact for this quarter is around 17%. Germany grew at 4% this quarter and YTD December it's grown at 7%. We continue to win incremental tenders quarter-on-quarter given visibility on a high single-digit growth for the future periods. Insulin revenues during the quarter is nil. As guided in the previous quarter, the facility was released for manufacturing in December and dispatches have commenced from January 2025. We should see some amount of spillover in the next quarter revenues. Coming to the key financial highlights for the quarter. Revenues were INR 2,809 crores, up by 3%, and on a YTD December basis, it's 7%. Operating EBITDA was INR 914 crores, up by 5%, and operating EBITDA margins have sustained at 32.5%. Insulin, which is a temporary impact this quarter, the revenue growth impact is 2%, BRL depreciation impact for the quarter on the top line is 2%, normalizing for both the underlying revenue growth for the quarter is 7%, and operating EBITDA growth is 12%. While insulin impact, along with some spillover over quarter 3 and quarter 4 will come back, we expect BRL depreciation impact to continue for a couple of quarters more. The Board today has recommended an interim dividend of INR 26 per equity share or 520% of the face value. I'll now hand over the call to Aman for India business.

Thanks, Sudhir. India revenue at INR 1,581 crores registered a growth of 12%. As per the AIOCD secondary market data, IPM growth for the quarter was 8%. Torrent's chronic business grew at 14% versus the IPM growth of 10% driven by outperformance in cardiac, diabetes and gastro divisions. Cardiac which is our largest business contributor has grown by 16% during the quarter versus a market growth of 10% due to the restructuring that was undertaken last year along with divisional expansion. We continue to see positive traction in the consumer health business. We've expanded our coverage to 75,000 from 72,000 outlets in Q2. On a MAT basis, Torrent has 20 brands in the top 500 of the IPM with 13 brands more than INR 100 crores sales as of last December 2024. Field force strength at the end of the quarter stands at 6,200 compared to 6,000 in Q2. We continue to be encouraged by the performance in the recently expanded divisions in headquarters. This expansion will help provide a platform for new launches and also include a territorial reach that let us gain market share in previously untapped areas. We expect the India business to continue outperforming the market growth. Our focus during the year will be to continue improving our market share in focused therapies, new launches, improving field force productivity in the expanded divisions, and we continue to scale able to consumer our business. I'll now hand over to Mr. Sanjay Gupta for the International business.

Thanks, Aman. We'll start with our branded generics business of Brazil. Based on internal [indiscernible], Q3 constant currency revenue was BRL 203 million, registering a 10% year-on-year growth. As per IQVIA, market growth was at 12% for Q3. Secondary sale for Torrent as per IQVIA also grew at 14%. During Q3, growth was aided by 5 decent launches directly and 2 drugs, our ADHD drug, lisdexamfetamine and a combination of [indiscernible]. We have a rich pipeline of 20 molecules filed and waiting for ANVISA approval. Moving on to Germany. Our Germany business registered a constant currency revenue of EUR 31 million, up by 4%. Higher growth in the tender segment was negated to some extent by setbacks in the OTC segment. During the quarter, we won incremental new tenders which would start delivering incremental sales from Q2 of next year. For the last 7 quarters, we've increased our overall value of wins in tenders. In the U.S., we registered constant currency revenues of $32 million, down by 3% and on a flat on a quarter-to-quarter basis. Sequentially, the U.S. business has been delivering stable revenue. During the quarter, the U.S. FDA issued an EIR with a VAI classification for the manufacturing facility at Pithampur. I would like to conclude our opening commentary and open the call up for questions.

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

My question is regarding insulin CMO business. So you have started supplies again. And correct me if I'm wrong, you earlier mentioned the normal run rate for this segment is INR 75 crores to INR 80 crores per quarter, right?

That's right.

Okay. So in fourth quarter, do you expect full recovery to come in plus some spillover or it will go back to the normal level of sales?

So there would be spillover. So over and above the run rate of INR 75 crores, INR 80 crores, there should be a significant spillover which you'll seen in quarter 4.

Okay. Okay. And this business revenue is largely passed on to EBITDA, right? It's a service business?

You're absolutely right because what happens is although the manufacturing is not happening, the manufacturing overheads will continue to get incurred. So if you see the P&L, the manufacturing expenses are coming, but material margins are not coming.

Understood. My second question is on Brazil. So in constant currency, you maintain good growth and outpacing the overall market growth. But in view of the currency depreciation, should we assume like similar trends to continue the way we have seen in second quarter, third quarter? And I just want to confirm, fourth quarter is generally the largest quarter for you in Brazil, right? So whether that will play out this fiscal or because of its currency, we might not see it?

So we expect past trends to continue. So you should expect a bigger fourth quarter as in all previous years. And there is a little bit of variation, like last quarter, the growth was 17%, this quarter it's 10%. But IQVIA has a pretty good reflection at 14% of the underlying trend of the business. So about the currency, you would not see an impact in this fiscal year. But as you know, in Brazil, every year, the prices get revised by the government, which is implemented in April. So I would be expecting a higher level of price increase allowed to us by a government, more in the -- close to the double-digit number as compared to middle or single digit in the last 3, 4 years. So let's see what happens. So I would expect the price compensation from the government starting in April.

Okay. And my last question, if you can update us on your gross debt or net position as of December quarter?

So I think on a net debt-to-EBITDA basis, we should be at 0.51.

0.51, okay.

[Operator Instructions] The next question is from the line of Sumit Gupta from Centrum Broking.

Can you provide a split of volume price in new products for the Indian market?

Yes. Breakup in AIOCD for the quarter is 12% growth for Torrent Pharma versus 8% on the market. That's broken up into 1.5% of volume, 8% of price and 2.5% of new products. And the volume of the market is close to 0.

Okay. And it will be 5% to 6% in price, I suppose?

Yes, I already mentioned 8% in price and market is 5% in price.

Okay. Okay. Understood. Understood. And sir, how many MRs are there at the end of Q3?

Q3 is 6,200.

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

Aman, sorry, I couldn't hear your comment on the cardiac weakness and what's driving that and how we are trying to address that? So apologies, but if you could please repeat that for me?

Sorry, question was about?

I think in the opening comments, you mentioned about some weakness in the Cardiac segment and some restructuring there, I couldn't quite catch it.

No. In fact, it was quite the opposite. What we mentioned was that our cardiac growth was 16% versus 10%, and that's due to the restructuring and expansion that we did last year.

Okay. Is there any other segment in India where you're seeing growth probably not in line with our expectation, and therefore, requires more work and where exactly are we adding the 500 MRs that we've increased in this last year?

I think compared to the trends from last year, the CMS market is a bit slow this year, maybe by 2%, 3%. So our growth in CMS is higher than the market, but the market growth is definitely slower. But our overall performance is offset due to the stronger growth that we have seen in some of these other areas like gastro and cardiac and diabetes. These 3 have been really driving the growth for us this year. What was your other question?

The MR addition, which areas have you added the 500 MRs?

Which areas? Essentially in these 3 areas that I mentioned where we are seeing this higher traction of growth, which is our cardiac, diabetes, gastro. Some in some of the smaller areas where we have probably very low market share and just trying to get a higher share. It won't be too meaningful. But most of the additions are in these areas, which is essentially chronic and subchronic.

Understood. Okay. That's helpful. My second question, Sudhir, the BRL impact would probably have been there in the SG&A cost as well, right? Is that the reason why the SG&A cost has moderated quarter-on-quarter?

You're right. One of the factors is BRL depreciation.

Is there anything else? And how much of it was the decline is the BRL? And is there any other factor you'd like to highlight?

Yes. Okay. Let me give you some data points actually. So quarter 1 adjusted for one-off of INR 20 crores which we had guided. The other expenses were INR 690 crores and quarter two INR 729 crores, which had some amount of one-off, smaller ones. So if you average off the quarter 1 and quarter 2, we are talking about INR 705 crores average against which we've done INR 673 crores this quarter, of which the BRL depreciation impact is roughly INR 10 crores to INR 11 crores. The second item there is a savings and manufacturing costs that we have seen to the extent of INR 10 crores. And that's something which is -- which was anticipated, I would say, because in winter, the energy consumption on HVAC goes down, right? I mean -- so that's the second factor. The third factor is there's some amount of efficiency which we got in trade expenses versus quarter 2, quarter 1 and that's to the tune of maybe INR 6 crores to INR 7 crores, I would say. And the rest, which is maybe INR 6 crores to INR 7 crores is lower sales and marketing expenses which were planned basically for quarter 3.

Okay, okay. And this INR 10 crores to INR 11 crores given the currency continues where it is will probably even continue in the next quarter at least, still the time currency...

I would think so.

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

So U.S. sales has been pretty stable, in fact, while we continue to get some approvals. But there has been not so meaningful pickup despite the regulatory clearance not in place now for quite some time. So if you could just throw some light in terms of the outlook for U.S. business?

Outlook right now it will be a slow pickup because the NDAs that we have signed have become more right. So the new filings in the last few years have been little over single digits. So with launches that we've had have been low single digits. And that offsets the price decreases that we've been facing, but it doesn't need to meaningful growth. So I don't expect the picture to change in the short term. It will take some time before the new filings are meaningful enough to have an impact.

Understood. And sir, what is the gross margin for the insulin business?

Tushar, it's something which we've not shared earlier. But on an overall basis, if you see the gross margin for the company has been 76% versus 76.6% in quarter 2, right? So there is some amount of impact both because of the BRL depreciation and probably insulin business.

I mean, interestingly, this -- despite this business reducing, you're not seeing the reduction in the gross margin or that is getting sort of more than offset by the other segment? How to think about it?

So if you see the contribution of the branded businesses have gone up, right, it's almost at 76%, and that's aiding us to sustain the gross margins at 76%.

And lastly, if you could share now, it's been quite some time there and, in fact, the traction has been very positive for consumer shelf business. So if you could share what kind of revenue you are getting from this on a quarterly basis in terms of price, volume, if it all you can further breakdown?

So the contribution remains in a similar range in the earlier quarters. It's not a business that can have much variation in such a short period of time. I think somewhere between 10% to 15% of total India business is what I believe should be the broad 4, 5 brands contribution in the consumer business. It's a question of how much are we investing right now and how much positive traction are we seeing in each individual brand. Some of them didn't show much positive traction. So we've slowed down the spending. Some brands are showing higher traction, so we're increasing spending. So the net spend remains pretty much in the same level. And YTD basis, our consumer spending has been, I would say, higher than last year by some amount. And I think it should continue to increase next year as well.

The next question is from the line of Abdulkader Puranwala from ICICI Securities.

Just first on Brazil revenue. And in the past, you've talked about some constant currency growth of mid-teens kind of a range. And then we had 1 or 2 product approvals also. So in Brazil, if you could help us understand what is the base business growth excluding the launches what you have done in the recent past?

Generally, what we've guided is the Brazil is intrinsically a double-digit market, right? So now what varies is the price increase. Volume increases are pretty low on the businesses, right? When I look at the India volume increases, it's outside of familiar to move from these markets also. Price increases are really dependent upon the government. So traditionally, it's been about 5% a year and then new product launches, it varies. If you have big launches, it has a bigger impact. Our general guidance take market at 10%, take Torrent at mid-teens level.

Okay. Got it. And second is on the new tenders what you expect to come in Q2 of next year, what should that translate in terms of growth for Germany? I mean, how should we look at Germany panning out for next year in terms of growth?

Correct, correct. So I mean, Germany, the tenders have a 2-year shelf life. So you actually have a pretty high degree of visibility on the tender business side. And you've seen that. I think last year, quarter 3, we did 30%, this year we did 32%. So yes, it's on an uptick and will continue, but it should not be offset by other business which is OTC products. So we are trying to improve that and operate the cumulative growth from both these segments.

Got it. And sir, just a final one on India and Brazil. So I mean, considering the GLP products which is going up, catering in both of these markets in March '26. So I mean, what is the launch strategy here? Are we going to be among the first wave of launches? Have we already started filing this product in those markets? Or we'll wait for the market formation to happen and then decide the strategy?

So our plan is to be there on day 1 of launch in GLP-1. I cannot comment anything further at this stage. But that's certainly the endeavor. That's for India and for Brazil similar.

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

Sir, my question is regarding India market. So like obviously, you continue to outpace the market growth. But according to you, like why we are seeing this muted volume trend in market for like a prolonged period of time? And how do you see this moving up in coming periods?

It's difficult to comment anything specific at the moment. I think the general chronic market where our focus and investments have gone in has not really seen that kind of slowdown. So our kind of view on the other segments would not be fair to make at this stage because we don't understand it as much. But the segments we are present in, we are not really seeing that kind of an impact. YTD, if you see the reported growth of Torrent is 13% for the India business, 12% for this quarter. So obviously, without the volume growth for the market YTD, we would not have been able to grow either. So while our performance has been aided by new launch performance as well, generally in this segment, we have not seen that much of an impact on the market volumes.

Sure. And my last question is tax and interest expense during the quarter -- third quarter were, I guess, less than the previous quarter, et cetera. So are these the new base? Or how should we look at tax rate and interest expense in coming quarters?

So Damayanti, the tax -- not tax, the interest will keep on going down quarter-on-quarter because repayments are happening, right? So that's something which will continue. And what we believe is probably next year or extending it by the 2 quarters next to next year, we should be net cash. So you will see a good amount of repayments happening over the next few quarters. So interest expenses will keep on going down, okay? As far as tax is concerned, from next year, we are entering into the new tax regime, which would mean overall effective tax rate of 25% products from now on.

Starting '26, right?

FY '26, yes.

Okay. And just on the debt reduction part. So you will be cash positive most likely in the second half of FY '26 with more repayments happening?

Not FY '26. I said FY '27 first half. But something which I'm stretching, right? I mean, so I think I should be there.

The next question is from the line of Nitin Agarwal from DAM Capital.

On the markets, the RW markets, we've had a reasonably flat number of close to INR 300 crores for the last few quarters now. How should we think about the growth outlook for this piece?

Generally, you should think about our annualized growth in the high single-digit, low double-digit percentage. This is the standard trend, but it's a wide mix of markets with different trends. And we are trying to kind of side-dive a few of them to make them into, let's say, bigger subsidiary. So I think you will see some parts of these do well on a sustainable basis. And then the growth to be more in the double-digit range than some quarters where it's in single digit. So more to come here, but I think that's all I can disclose at this point in time.

And just to add, I think some countries have a much higher growth rate in double digits or teens as well. Because it gets offset by occasional loss of tenders in some other regions, so that's why it ends up being in the high single digit, low double digit. But the endeavor is to create a more higher concentration on the higher growth markets over the next 2, 3 years.

That's helpful. And secondly, you touched upon this India and Brazil GLP-1 launches. But I mean, forget in terms of what -- keeping aside what we intend to do in the market, what is your take on -- I mean how does a broader GLP-1 market really shape up in India and Brazil upon market formation? Do you see that being a seriously large opportunity for all the players involved or there could be some negative surprises here?

I think in India, historically, the GLP-1 market has not been very big compared to some of the regulated markets. It's been much smaller, but we believe this upcoming wave will probably be on the higher side and larger offtake compared to the past historical brand launches or recent other GLP-1s. I think the acceptance probably will be on the higher side within the -- for the Indian population as well. So probably a much bigger opportunity than the earlier GLP-1s, but how much to size right now is very hard to say. We are quite optimistic on this space and we'll be looking for a reasonably significant share in this as well.

And actually Sudhir, what is the normalized level for this insulin business on an annualized basis?

So revenues per quarter should be 75% to 80% is what I had earlier mentioned. Quarter 4 will be little higher because of the spillover which are going to happen.

Okay. But in the past, we used to report close to INR 150-odd crores in this business, what -- there is more to it than the insulin part in this business?

It's around INR 300 crore on an annualized basis, Nitin.

Okay. So basically, whatever that you report in others, we knock off on annualized, this is INR 300 crores from here, rest all is RW sales?

Yes.

The next question is from the line of Vivek Agarwal from Citigroup.

My question is related to the broader picture on margins. In this quarter, we have seen impact of different factors like insulin, currency, et cetera. So it would be helpful if you can give some color on how to look at the overall margins in 4Q as well as the next year and some of these factors that impacted this quarter might get reversed?

Vivek, the only thing I can say is that if BRL depreciation hasn't happened this quarter, the margin should have been higher than 32.5%, which we've reported. And therefore, I think from a quarter 4 perspective, I still feel that 32.5% is something which we can maintain, okay? And on a full year basis, that would mean that last year, I think the operating EBITDA was 31.4%, and this year, we should close at around 32.5%, I would say. So 110 basis point improvement already done this year. So I don't expect much beyond this because that's been our earlier guidance that every year, our margins should go up between 50 to 100 basis points, right? I think -- next year, I think I still believe because of the branded segment having significant contribution to the overall revenues, the margin improvement which is 50 to 100 basis points should continue. I think this year, U.S. has been negative, but we expect some launches to happen next year as far as U.S. is concerned. So at least next year that negative contribution which is coming this year from the U.S. should not be seen next year. So all the more, I believe the margin improvement of 50 to 100 basis points should continue next year in spite of some reinvestment happening in the branded business, I would say.

Understood. That is very clear. And on GLP-1, actually, you have mentioned that you are confident of getting significant share in the state. So what makes you confident if you and to clarify on this?

The endeavor is to match our current share in the overall diabetes and chronic care space which has been increasing year-on-year. So if we are able to get a market share of a similar level which has been seen in the recent new launches, particularly in diabetes, that itself is a significant share. So the recent new launch performance gives us the -- at least the comfort to have the ambition to have this share. But as I mentioned, it's still early to comment on the size and the exact opportunity that's ahead of us, but the plans are definitely getting in place.

So is it fair to assume that the product is largely going to be prescribed by the diabetologist, cardiologist, et cetera, and the companies who have a strong presence in this segment, how I find the [indiscernible]?

That would be the assumption. Yes, it would be predominantly diabetes, patients and those who consult -- let's say, consulting physicians who also see diabetes patients. So it would be a similar segment to what we are covering right now.

Understood. And just last question again on GLP. [indiscernible], it will be required to conduct a clinical trial before the finance submission. So how you move that progress as far as the clinical trials, et cetera?

Yes, that's currently ongoing.

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

Sudhir, just first one on your comments on the whole net cash in the next couple of years. So I want to understand what are the capital allocation priorities? We typically never reached there, we announced an acquisition before, historically I'm saying. So just want to understand what are some of the priority areas for us in terms of allocating this statutory?

Srini, that's something which is work in progress. Maybe I can give you some color a couple of quarters down the line.

Sudhir, just in terms of areas, I'm not asking for the transactions you're looking at, but I'm just saying what are the areas, is it India, is there any rank order of which geographies or therapy areas? Is there any non-India geographies you're looking at? So any broad directional color is what I mean?

So our standard top priority always has been India, right? That's where we have the best track record and experience and the highest degree of comfort. Branded generic market, generally, we've not been very active because the number of opportunities in our core markets have been few and far between. So like Brazil, for example, it's very rare to have a transaction in that market and Mexico has its own challenges. So I would say the prioritization is India, Brazil in generics, and then, of course, we are open to some opportunities in developed markets of Germany and the U.S. also in particular specified areas. So yes, the -- and that is the prioritization.

Understood. And from a valuation perspective, I think that's been one of the key pushbacks from your end to making these transactions. I know maybe it's early days on India overall market correction. But are you seeing assets or in your BD discussions are you seeing transactions which are mark-to-market lower in terms of valuation and coming closer to where your payback periods could likely be?

No, Shyam. Currently, we are not seeing any such opportunity coming in.

The next question is from the line of Madhav from Fidelity Group.

Just one question from my side on the GLP-1 for the India market. What could be our sort of supply chain strategy? Like do we plan to make it and how -- will it be completely outsourced because there is -- at least for that basic understanding is that you need to get the API, then there is a formulation and then there's the assembly still finish, et cetera, so there's quite a few steps. So do we plan to completely outsource everything or would we do something in-house?

So the injectable GLP-1s would be partnered. The oral GLP-1s would be in-house. That's the current plan.

By partner, you mean it could be fully outsourced? The production should be by the finished unit and [indiscernible] in the market, is that right?

That's right, yes.

Okay. So just one follow-up. At least, again, very basic understanding of this space is that, generally, for injectables, it's better to have the production in-house because only then the margins are good. Otherwise, a lot of the margin is captured by the manufacturing partner. Is that the right understanding for injectable GLP-1s as well or not?

It's too speculative right now, I feel, but it's definitely not -- in that sense, it has to be remunerated for a partner like us as well. Otherwise, we would not be really able to spend on the investment in market shaping. So in that sense, it may not be similar to some of the past examples. But again, it's too early to comment on this right now.

The next question is from the line of Vivek Agarwal from Citi Group.

Again, this is related to GLP-1. As the market has not formed yet, and if let's say post commercialization, post market formation, if there is a kind of negative surprise, right? So what do you think this is? Whether it's going to be the demand side challenges or do you think it can be a supply side challenge?

Probably more on the demand side because it's uncertain right now what exactly the offtake will be like. Supply side, over time, at least our current view is that there may not be too much of a constraint. We believe there are a lot of investments going into this space within India and globally as well. So maybe initially, potentially, there may be. But over a 1-year, 2-year period, that should not really be a constraint is what we believe. What the actual demand in offtake looks like, that is obviously still yet to be seen.

So in the initial 1 to 2 years, do you think that there may still be some kind of supply side compliance?

Less probability, but we can't rule it out.

Okay. And just one more question. You have mentioned that you are making some kind of investments in the market formation. So can you just clarify what kind of investments you're making in market formation in the sales force, promotion and on what?

As of now, it's -- again, we can't comment specifically on this. But if anyone like Torrent, for example, is to launch a product, which is not there in the Indian market, it has to be more of an information dissemination and education exercise which has to take place, which whoever would be the first few players to launch would be undertaking that activity. So that's what's being referred to.

Understood. And sir, just a related question on Brazil. So compared to India, how we see market formation in that particular market?

So Brazil what has happened is that [indiscernible] has been supply constrained massively. So while the market is very big -- I mean, I think we don't -- I don't have the data on the current size of the market, it's hundreds of millions of dollars, but it's hard to estimate the size because the supply has been very tight. So I can't really comment, but we would expect the volumes to increase substantially because there has been demand and the supply constrain is in place since quite a few years.

And so last question. So are you more optimistic on India or on Brazil for this particular product?

I'm optimistic on Brazil and Aman is optimistic on India.

The next question is from the line of Anubhav Agarwal from UBS.

Yes. So I'm just continuing the discussion on GLP only. So one question on India market. So which class of drug under diabetes would this largely displace, will be gliptin which will get impacted?

It all depends on the pricing, what price point do the GLP-1s come in. But either way, it's going to be a large gap in the current price of therapy for, let's say, gliptins or SGLT2s and the GLP-1s that may come in the future. So it should not really be a significant dent on the existing market because the price cap will just be too large.

Actually, that's what my second question was because most of the gliptins, even if we take the generic sitagliptin today, the tablet costs about INR 10 a day, monthly cost would be about INR 150, let's say, twice a day. And unlikely that injection of GLP-1 will be available for less than INR 500. So that's the question that was that you were referring to the demand issue that the price difference will be 5x of the other option?

I don't know about 5x, but certainly, there will be a gap between the existing products from the market, the tablets especially and the injection, for example, in GLP-1. So that obviously reduces your addressable market overall though it's still a large-sized market when you look at diabetes plus obesity put together. So it's not that it completely rules out a segment. There's enough new patients that also can be added and lower volumes of patients with a higher price means the market will still be large, that's assuming the offtake is of a significant level, which is, again, still too early to kind of give any clear view on at this stage.

The next question is from the line of Dheeresh Pathak from [indiscernible] Capital.

The insulin business gross margins are at company average, right?

No, it would be lower than the overall gross margins at the company level.

Like 5% lower, 10% lower range will help?

Sorry, I can't comment on that. Definitely, lower than the overall average.

Okay. And this -- in the Brazil business, what is our net exposure, like we'll have costs also in local currency. So can you share like a net exposure and what the -- how you hedge it?

So I think as a policy, what we do is we hedge for the next 12 months. So [indiscernible] cash flow hedge, right? And therefore, the depreciation, the further depreciation happening, there's no impact on the cash, I would say. So it's basically the translation of the foreign currency financials to INR is where you will see that impact coming in because of the hedging -- there's a minor cost, I would say, because of the hedging cost versus hedging premium differences, I would say. So it's not impacting much on a cash basis I would say.

Okay. So just to understand, what percentage of the revenue that you show in Brazil would have cost in local currency? Is it like 40%, 50% of that revenue will have local costs?

No. So I think as far as Brazil COGS is concerned, that's entirely getting manufactured from India. So when you consolidate account, it actually falls down to your INR cost as far as COGS is concerned. But since it's a marketing company, the middle line, which is there, it is largely in local currency.

That will be roughly 40% at least of the revenue?

Yes, what I would tell you is maybe if you can go to our website and look at the Brazil financials of FY '24, you will get an idea as to what is the extent of local currency expenses which are happening.

Okay. And when you are reporting, they're reporting at the spot exchange rate and the hedge gain or loss, you are showing other expenses that the company is working?

So different items are converted by using different exchange rates. For example, as far as the income statement is concerned, it's an average rate, which is used for converting. The balance sheet, most of the items are converted at the closing rate. And something like share capital is converted at the original cost rates.

And the hedge win would have shown other expense, right, in other income or other expense, how do you show this? So what I'm asking is you look at spot or you book at the hedged rate when we show the revenue?

No, no. Hedge gains come by way of other income or other expenses. But quarter 3, we have a ForEx gain -- overall ForEx gain, not from BRL, but from other currencies, which are part of other income.

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

Just a quick one on Brazil. Where are you on your approval process for [indiscernible] when do you think the approval will come through?

So we expect to be there when the market opens up. So -- but I won't be able to share further details with you.

But you expect to be -- and this is what the market opening should be happening with [indiscernible] in Jan, right? Or do you see a different time for that?

2026.

Yes. Jan '26?

March.

Okay. Around the time basically for Q1 of -- first calendar quarter of '26?

Correct. Correct.

[Operator Instructions] We don't have anyone in the question queue. As there are no further questions, I would now like to hand the conference over to Mr. Sanjay Gupta, Executive Director of International Business for closing comments.

Yes. Thank you, everyone, for your interest in Torrent Pharma. Wish you a good weekend. Thank you. Bye-bye.

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