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Ajanta Pharma Ltd
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Ladies and gentlemen, good day, and welcome to Ajanta Pharma Q3 FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Yogesh Agrawal, Managing Director of Ajanta Pharma Limited. And over to you, sir.
Thank you. Good evening, everyone, and welcome to all of you. On the call today, we have with me Mr. Rajesh Agrawal, Joint Managing Director; and Mr. Arvind Agrawal, our CFO. As you are aware, the company has announced a buyback of INR 352 crores, including taxes. With this, the buyback and the dividend of INR 82 crores paid during the previous quarter. The total outflow to the shareholders for the financial year stands at INR 434 crores. So this reiterates our commitment to the shareholders to return the free cash flow in excess of the business needs. Let me come to the results now, which are already there with you, and I'm happy to share that this has been another exciting quarter for us. We've been able to achieve continued growth for the Q3 in major business segments. Let me take you through our business-wise performance for the quarter and 9 months, along with the comparison of the previous year for the same period. So first, I'll begin with the emerging markets, branded generic business. As you are aware, this business spreads across Asia and Africa continents, and it contributes 41% of the revenue. Our exports to these markets were INR 361 crores against INR 285 crores, a growth of 26% during the quarter, and the 9-month sales were INR 1,002 crores against INR 851 crores, a growth of 18%. So this was for the overall emerging market branded generic. Let me split it further in Asia and Africa for you. So in Asia during the quarter, the sales were INR 194 crores against INR 196 crores, posting 1% degrowth, so practically, [ we were flat there ]. And for the 9 months, sales were INR 551 crores against INR 537 crores, posting a 3% growth. So the growth was lower in the 9 months during the -- due to the supply chain disruptions, some unpredictable and uncertain lockdowns and certain restrictions that were imposed in our market. But I can assure you that we have all the required elements in place, and we are optimistic to pick up the growth in coming quarters in Asia. Moving on to Africa. During the quarter, the sales was at INR 167 crore against INR 89 crores, posting a very healthy growth of 87%. And for the 9-month sales were at INR 451 crores against INR 314 crores, posting a robust growth of 44%.So though, overall, our growth are significantly higher than the market growths, however, during the quarter, the growth of 87% looks a bit more elevated due to a lower sales base of the previous year corresponding quarter. With this, now I move to the next business vertical, which is U.S. Generics business. So the U.S. contributed 22% in our revenue. We registered sales of INR 166 crores against INR 161 crores, posting 3% growth during the quarter. And for 9 months, sales were INR 528 crores against INR 464 crores, posting 14% growth. In Q3, pricing pressures were continued, and they were higher than the anticipated on the base business, resulting in lower growth. And for the 9 months, we launched 3 new products and filed 3 new ANDAs. We are looking to 5, 10 to 12 ANDAs during the year, so we are hopeful to file another 7 ANDAs in the last quarter. We have received one approval, each one -- that is one final and one tentative during 9 months from the U.S. FDA. Now I move to the next business vertical, which is our Africa Institution business. The business contributed 6% to our overall revenue. We registered sales of INR 36 crores against INR 77 crores, posting a degrowth of 53% during the quarter, and INR 156 crores against INR 191 crores, posting degrowth of 18% for 9 months. as I's have expressed before, Institution business is more unpredictable and lumpy in nature, and it can have high variability from quarter to quarter. With this, now I hand over to Mr. Rajesh Agrawal, our Joint Managing Director, who will take you through India business. Thank you, and over to you, Rajesh.
Thank you very much. Good evening to all of you. Let me discuss some of the key highlights of the India business with you now. India business contributed 30% to the overall revenue of the group. Sales for India business stood at INR 260 crores as against INR 220 crores, posting a healthy growth of 18% during the quarter. And it stood at INR 737 crores against INR 595 crores, posting a healthy growth of 24% during the first 9 months of FY 2022. This includes sales from trade generics of INR 30 crores during the quarter and of INR 87 crores in the first 9 months of FY '22. Our performance has been satisfactory, which was on the back of new product launches, market share gain and also price increase. As per IQVIA MAT December 2021, we have posted a healthy growth in all the therapeutic segments and exceeded the industry growth rates across therapies. We have launched 16 new products in the first 9 months of FY '22 with 4 first-to-market products. Field activities and its expenses are normalized and back to pre-COVID levels. With this, I now hand over to Arvind Agrawal, CFO, to take you through the financial performance. Thank you, and over to you, Arvind Jai.
Thank you very much, sir. Good evening to all of you, and a warm welcome to this earnings call. For ease of discussion, we will look at the consolidated financials and provide year-on-year comparison. Let me share key highlights with you. It was an excellent quarter with 12% growth in revenue at INR 838 crores against INR 749 crores. During 9 months FY '22, revenue was INR 2,471 crores against INR 2,133 crores, a growth of 16%. The EBITDA for the quarter stood at INR 240 crores against INR 242 crores for 9 months. It was at INR 732 crores -- INR 731 crores against INR 739 crores. EBITDA was 29% in Q3 and 30% in 9 months of revenue from operations and saw marginal degrowth. The impact was due to two aspects. One was inorganized expenses on both R&D and marketing, and also increase in input cost and freight expenses. These are the two major things, which have really impacted our EBITDA margin, which we have already talked about. During the quarter, PAT was at INR 192 crores against INR 177 crores, up 9%. And in 9 months, it stood at INR 561 crores against INR 495 crores, up 14%. That was 23% of revenue from operations. Material cost was in line with our expectations. However, we continue to see the material prices going up as a result of global inflation. R&D expenses was at INR 51 crores against INR 40 crores for the quarter and INR 145 crores against INR 100 crores for 9 months of FY '22. R&D expenses stood at 6% of revenue, which was in line with our pre-COVID level. Other expenses have reached normal levels, as all the activities are at pre-COVID level now. Other income stood at INR 78 crores in 9 months of FY '22, mainly contributed by ForEx gains of INR 49 crores. Income tax stood at 21% in 9 months of FY '22 against 27% in FY 2021 and expected to be around this level for the year. We incurred CapEx of INR 116 crores in 9 months of FY 2022 against full year projection of about INR 200 crores. With these highlights, I open the floor for the question and answer. Thank you.
[Operator Instructions] We'll take the first question from the line of Tushar Manudhane from Motilal Oswal Financial Services.
Sir, just a clarification on other expenses, wherein the freight costs have continued to be at higher level, but then the activities are back to pre-COVID level. So INR 250 crores on a quarterly basis, is that a steady rate to go with or there could be further changes into -- on absolute basis?
I think on absolute basis, we can consider the rate of about INR 250 crores level, INR 247 crores in the current level. So INR 250 crores level should be the normal level.
Okay. So then, I mean, from INR 220 crores levels to about INR 247 crores on a sequential basis is the increase that has happened.
Yes, yes.
And secondly, on the U.S. sales, with the slowing of filing as well as launches, do you see further price erosion impacting to what level basically on the U.S. sales around that?
Good question, but unfortunately very difficult to make any predictions on that. So we've seen some aggressive price erosions in last 9 months. We believe that they should stabilize at some point in time. But the question is when and how much is yet to be determined. So very difficult to point a finger on that number there.
Okay, sir. And like how many approvals do you expect to see in the next 3 to 6 months?
Again, very difficult. We have a lot of ANDAs awaiting approval, awaiting the facility inspection. So we have the complete response from the FDA saying that once facility approval, they will complete the facility approval and then approve the ANDA. So we can't predict right now when they'll start complete inspections and start giving the approvals.
Understood. And just lastly, what would be the outlook on the Institutional Antimalaria business in terms of order book?
Institution is again a bit choppy. Current scenario, we've seen, I think, the funds -- global funds -- the funds are not that much with the agencies. The countries are not donating as much, so difficult to put a number out there. It's -- I think already we've seen in this quarter there's a significant drop, but we've been able to recover that loss with some other businesses from India and the emerging markets and Branded Generic.
[Operator Instructions] Our next question is from the line of Abdulkader Puranwala from Elara Capital.
Sir, what is the possibility for you to break your India growth in volume, price and launches?
I think, yes, we can do that. Maybe at some point, if you can get in touch with the Investor Relations team, CFO, can share the information with you our detailed [indiscernible], yes.
Sure. And sir, in terms of the launches, so far, you said that you've launched close to 16 products. So what is the target for this year and for next year in terms of launches? And which therapies should we expect these launches to be?
So we don't have a target specifically set for every year. We take it as it comes. For the current year, I think, more or less, whatever brands we had to launch, we have launched them already into the market. There may be a couple of more which may get launched between Jan and March. And as of now, as it stands, it's mostly into cardiology, antidiabetic segments that we have introduced. And there have been some products which we brought in, which have been to plug the gap in these therapy areas in which we operate.
And just lastly, on the tax rate, I slightly missed the remarks of Arvind Jai. Would the tax rate remain at 17% or the 9-month level of 21%?
Around 21% because 9 months, if you see, is about 21%, so we are expecting that rate to be there for the whole year.
Our next question is from the line of Nakshita Mehta from Credent Asset Management.
So I see you have come up with a buyback, right? So I just wanted to know what are our plans with that capital. Are we planning to -- are we planning some kind of CapEx? And what is it? Can you -- if you can just give some light on that.
Because we don't need that particular money now, and that is why we have announced the buyback. So it is something, which we are giving back to the shareholders. So practically, we are not raising the money. We are repaying back to the shareholders.
Correct, correct, correct. Sorry, I got confused. But even so, is there any CapEx or anything that we are coming up with?
See, this year, we have given the guidance of about INR 200 crores CapEx, which is happening as we go along. And from next year onwards, we have given the guidance that our maintenance CapEx will be there of about INR 100 crores, INR 150 crores.
Okay. So this CapEx would be in terms of -- in India or it would be overseas. How is that?
It will be only in India.
Our next question is from the line of Ranvir Singh from Sunidhi Securities.
Sir, just a few clarity here on India business. Currently, we have 2,800 field force. Earlier, it used to be 3,000. So have we curtailed 200 field force?
Yes. In fact, during the COVID level, there were some of the people, which were in Q1, if you remember, we have said that we have reduced the numbers by over 200.
So current sales productivity has obviously sequentially see a good improvement there. So is this sustainable? Or can we expect this going further up?
It can go up further. Sorry. Yes, please go ahead.
It can go eventually, but -- I'm sorry. You would like to...
No, please go ahead. You can...
Particularly the normal growth, which we are expecting in the India market, that will remain. We are not expecting any major addition to the field force in India.
And the -- just to add to that. And the whole objective is to increase the productivity, and we don't look at -- we are not looking at further optimizing the field strength. I think this is an ideal number, and we will build on the productivity for the next whole year.
Okay. And another aspect I see of that four major portfolio, pain management has been growing strongly for last few quarters. So is there deliberately a strategy to focus on? Or is this, the market itself is driving this segment?
This is a deliberate strategy. This segment, we have been operating for a few years now, and we have very good products with us at this point. And we are the market leaders in those, including febuxostat, which itself is over INR 50 crore brand for us at this point. So that also is growing in a double-digit growth rate.
So can you give some guidance or something, just a ball park, that where pain management segment is going to be in terms of percentage of sales going forward, let's say, for 2, 3 years?
Honestly, again, it depends. It's not a specific target that we take in the sense that to the domestic business, we want pain to contribute x percentage versus cardiology versus ophthalmology. It will primarily be dependent on what opportunities we get in hand and how we can maintain the market leadership. But pain is a very important therapeutic segment for us, and we have a very strong presence in each of the molecules that we have in the brand portfolio. We have the market leadership positions in those.
Okay. Fine, fine. So -- and last one with your permission. In U.S. business, the filing has been stagnant. And now in Q4, everything is looking like bunching up out of 10 target filing. So was there any challenges there in filing or that was already settled for Q4, which earlier we guided?
No. It just happened to be that way. When we kick started the R&D after the lockdown, it took a little time to get the momentum back. So by the time we got the momentum back, and all the activities started, the bioequivalence -- apparent bioequivalence and all those things, it just so happened the bunching is happening in the Q4. But this is one year where this bunching is happening. Next year going onwards -- next year onwards, we feel the filings would be more spread out during the whole year because now we have got all the momentum in place now. So there are a lot of products, which are at advanced stage of development, manufacturing, maybe taking exhibit batches and things like that. So next year, we should see the more evened out kind of filing.
And any indication on number of launches in FY '23 or in Q4?
Yes. I don't think you'll get that answer from anyone with a convincing way. When I say anyone is any pharma company. Because as I shared earlier with the earlier caller, it's very unpredictable because of the inspection primarily. So once the inspection opens up, you can expect a good number of launches to come through because the approvals will then just line up. And two of our facilities are US FDA approved. So even if they come to one facility, there are a number of ANDAs from each facility, which are awaiting. So once that inspection happens, then, hopefully, a number of ANDAs will get cleared. So right now, it is more of a wait-and-watch kind of scenario.
But we already have a few products that is approved, but not launched. So for that 41, 42 are slower.
There are some tentative approvals, which is available in the public domain also. Some of them are there. Some, we are expecting approvals in maybe Q4 or Q1.
We'll take the next question from the line of Aditya Khemka from InCred Asset Management.
Firstly, on the India portfolio, could you inform us of how much of the portfolio is [ doing there again ]?
Arvind, if you know...
15%.
15%, did I hear you right?
Yes.
Okay. And then my next question is that given that this time is WPI is north of 10%, and likely the government will allow you to take anything up to 10% price increase in your NLEM portfolio. And your costs have also gone up because WPI prices have gone up and [ competition ] must be asking for a higher price for the product. What kind of price increase do you think you can take in FY '22 given that it will be north of 10%?
Surely. So WPI stands at maybe 10.4 odd at this point. And so you -- I think in a way, I have answered your own question. Like we would look to maximize the price increase that's permitted by the government authority. So that would be, again, 10% odd because if you look at the past -- even though now it may look 10% plus, but if you look at the past 2 years, it's also been in very low single digits. You would remember last year was something like maybe -- or a year before last was 0.5%. So there have been accumulated pain in the industry, I suppose. And so we would look to maximize it.
Right. So that -- would that imply like a 9%, 10% price growth across the portfolio in NLEM and non-NLEM?
I think NLEM for sure. Non-NLEM is very competitive and market scenario based. We cannot be much higher than the other competitors. But when it comes to NLEM, as you would have seen, all the market leaders have similar pricing, which is pegging the NLEM committed price. So in that case, yes, we should be looking at increasing at 10%. There is a bit of a confusion at this point because NPPA mandates that we cannot increase more than 10%, whereas the WPI has arrived at 10.5%. So we would really need to tread that carefully and see because we don't want to get caught in the crossfire there.
Yes. I think NLEM mentioned WPI or 10%, whichever is lower. So I think...
There you go. So that's what it is. We just want to be very careful. We will work it out through some of the consultants and only then move ahead.
Understood. And again, just to reiterate, we'll do it on your NLEM and non-NLEM portfolio, but non-NLEM would be also driven by competitive sources.
That is correct.
Understood. Sir, what is the impact on the gross margin you have seen because of inflation of this raw material? Are you already experiencing some impact on gross margins because of this?
Yes. We are experiencing, and that is already factored in. So the number, which you see for the current quarter is -- we are not giving the breakup in each add-on, what is the increase on the freight or the raw materials and the price erosion. But there has been impact, which has adversely. But fortunately, we've been able to mitigate that with our Branded Generic business, which is in India and emerging market, which is a higher margin. But we have seen all the three components impacting our gross contributions and gross margins. If it wasn't for these, then I think our performance would have been even slightly better than what it is now.
Right. And sir, India, obviously, we know the regulatory framework, and we understand how you can increase prices and how much you can increase prices. Can you help us understand the leverage to framework, if at all, on the emerging market side, where you have other Branded Generic specifically? In those markets, how does it work with price increases? How easy is it to pass on inflation and cost or how difficult it is? If you can just talk about that in a little bit.
So different markets, they have different regulations. Just to simplify for you and all the callers, I would say around 60% to 65% of the countries where we have businesses, they have a price control, so the prices are fixed. And about 40% -- 35% to 40%, we are free to price the product. We can do the changes, increase or decrease them.
This is within the Branded Generic bucket.
Branded Generic, yes.
Understood, understood. So wherever there is price fixing by the government, there -- will they take into account the inflation in costs that you are facing? Or is that something -- what has been the trend, so far, I mean, for the last 2, 3 years? How has been the pricing moving in those markets?
Some countries, they agreed. They accepted that this inflation is a global phenomenon, and freight and all the components are going up. So they have given some relaxation. But some countries, they have still not yet yielded to the request of the industry. So the efforts are on directly representation to the various authorities or through some bodies, associations and things like that. We feel that at some point in time, they will have to yield to some level. The question is when and how much, so we have to just wait and watch.
Right. And some last question along the same line. How easy would it be or how difficult would it be to pass on this cost pressure in the U.S. market?
That's a wishful thinking. In the U.S., it is very different. As you all know, it's very, very competitive, so I don't think the possibility of passing on the price increases in the U.S. market exists. It's very driven by the competition, so I think that's the nature of the game, which we are playing. We have to live with that. The only way you can do is try to increase your market share. But that also has its own risks if you try to disrupt the [ Apple ] cart. That can also sometimes not work in your favor.
Absolutely. Increasing volume means increasing capital employed and increasing capacity, so that obviously is another different risk at altogether. So if I were to sort the markets in terms of fees of passing on cost inflation, it would be India followed by certain branded generic markets, which have regulatory frameworks -- which don't have regulatory frameworks followed by certain branded markets, which have a regulatory framework, followed by the U.S. Is that the order you would go with?
Yes, absolutely. I think you got it perfectly in the direct order.
Understood. Sir, this is very helpful. Just one question different from this -- all of this. In terms of margins now in the U.S., would you still say you are at the corporate average, below the corporate average, above the corporate average?
What average?
Below the corporate average.
No. We are not sharing those final details. But overall, as we've shared in the last quarter, we are profitable at EBITDA and PAT level also in the U.S., so that doesn't change in this quarter as well. So we still are doing all right with our margins.
And sir, given where your profitability is now for the U.S. and for the Indian market and for emerging markets, what is the best use of your capital? Would you want to increase capacity in U.S.? Would you want to launch more products in India or launch more products in branded generic markets exports?
Let me put it other way around. I think nothing has stopped us from launching more products or expanding in the Branded Generic business, whether it is in India or emerging markets. And we continue to remain very aggressive in all our markets. India, already Rajesh has shared with you. Emerging markets, you can already -- you can see the growth, which we have been posting in Africa and certain Asia and other territories. So they are very robust plans, which we have there. And I have shared before also, U.S., we are treading very carefully because the investments are very high in the ANDA filing. So we have to be very judicious on the product selection, on how many products they want to file. So we've already curtailed our ambition in the U.S. for the ANDAs, which we are going to file. We've already -- earlier, we are expecting 15 to 18, which we have now dropped down to around 10 plus. So the -- we are being very careful with the investments, which we are making in the U.S. And in terms of capacity, if you say manufacturing capacity, we have adequate capacities for all our markets, whether it is India or Branded Generic, emerging markets or including U.S., whatever ANDAs which we are filing from both the facilities, as and when we can get them to the launch, we have adequate capacities. So there is no particular CapEx, which we are looking to add other than the routine maintenance CapEx for next 3 to 4 years, at least, the visibility which we have. In the existing business verticals, if we open up in a new vertical, that's a different ball game.
Right. So sir, in the foreseeable 3 to 5 years, you're putting more capital to work in the U.S., barring the 15 to 18 ANDAs, which you would file. Do you see yourself allocating more CapEx to the U.S. in the next 3 to 5 years?
No.
Yes. This is because...
The market economy isn't working out for you, right?
Sorry. What is not working out?
The economics of the market isn't working in our favor, right?
Exactly. So as I've told you, our -- more optimistic and more plans. And the thing is in the Branded Generics business, whether it is India or emerging markets, and we are treading carefully in the U.S., being selective in the ANDA filings. So naturally, the capital allocation will be higher on these other markets, Branded Generics business as compared to the U.S.
The next question is from the line of Kunal Randeria from Edelweiss.
Sir, just trying to understand the U.S. pricing pressure a bit more, especially with regards to Ajanta's portfolio. But does it look higher because we have not had new launches this year? Or has your base business erosion been much higher than what it was in the previous years?
I don't know if the [ hire ] is in relation to what. We don't have any figures on the competition. We just know generally what is in the price erosion, which is on the double digit. So in fact, I would say that we have one or more insulated companies in the U.S. business, what we have, as compared to some of our competitors, where their base business got more adversely impacted than us. So we are -- relatively, we've done better. So we've been -- we've done a decent job in protecting our market share. Maybe -- that was maybe at the cost of reduced margins. But in absolute amount or, let's say, in the number of tablets, if you say, we've done a pretty good job of defending our business.
So would it be fair to say that instead of 2 launches, the 3 launches that you have done in 9 months, have you done 7, 8 launches, the erosion would have been substantially lower?
Yes. So in the U.S., the business growth is a direct function of the new product launches, which you will get in the market because existing business, the scale-up can happen. It's not very predictable on how much market share you can increase. It depends on any competitor having supply challenges, constraints we are able to make place for that new customer there. And the new products are always the growth drivers. So that one major important growth driver for the U.S., that was taken away from us. And we had to make do with whatever products we had, not only different -- not only existing, but we have to defend the existing business which we have. So once the new product launches comes in, hopefully, next year, we should be able to start posting the growth in U.S. again.
Sure, sure. Sir, just a follow-up on this. In 2018, 2019, you had seen a lot of larger U.S.-focused guys withdrawing from the molecules in the U.S. because they couldn't cope up to the price erosion because it didn't make a lot of economic sense to be in the market. Have you started to see it in the market now?
No particular pattern images like that. There have been on and off people coming in and then going out. So I think if I try to guess, I would be speculating, which I don't want to do. But we haven't seen some major players saying -- declaring that, okay, we are going to exit from 50 ANDAs or 20 ANDAs or 100 ANDAs. Selectively, if it becomes unviable for them, they feel their capacities are better utilized for some other products, all those factors, then there are -- we've seen the people withdrawing the products from the marketplace.
Sure, sure. And sir, just as a clarification. In the domestic business, has the trade tariff contribution gone up?
You think the trade generic business?
Yes. Certainly, it has come up. The trade generic business is growing. And therefore, contribution is marginally going up. But as you would see, it's, again, a very, very small percent of the total business.
So just -- it means that branded is growing comfortably in low teens, right? That would be fair to assume.
Branded is growing much more as we have reported. It's growing in higher teens.
Okay. It's okay. Sure, sure. And just more one question for Arvind Jai. Sir, your employee cost has gone up around 20% on a year-on-year basis. If you could share some of the reasons behind it. And next year onwards, should we assume that it would be more like high single digit 10% kind of growth?
See, yes, we have added some people in R&D and some other areas. So definitely, this is because of that reason. And going forward, I think it should be normal because now we have almost filled all the vacancies, which were there.
There were also some facilities, which got added. Our Guwahati facility has been continuously operationalizing each line. So as and when the new blocks get added, but now they are all fully baked in. So what numbers you see, they are the normalized going number. And as I said, it should go into that increment percentage of yearly increments, what you should see from year onwards -- from the next year onwards. If you already see, I think for the quarter wise, you can see a trend. We are at a similar number of INR 160 crores, plus/minus, for the last 3 quarters. So you can already see a trend that it is already established, that the base is established around there.
Our next question is from the line of Nitin Gosar from Invesco.
Over the last 3, 4 years, if one were to see as a company, our rank is improving in [ IPM ] but if one were to take a specific call, sorry, cardiology is not showing a substantial improvement. In fact, cardiology is where we have given away a couple of ranks. What's your analysis? Is there any product gap? Or are we not able to service the white space that we used to service earlier? How should we see this getting addressed going forward?
In cardiology, primarily, what has happened is if you look at the drop that you may see, it's a bit deceptive. And if you look at it, that's happened in the last, maybe, less than 2 years. And that is primarily because there have been a lot of COVID-driven products in cardiovascular, which have grown substantially in the last year and in which anti-platelet therapy is right -- every COVID patient was being prescribed that after COVID recovery, antithrombosis. So you see that is where the growth has come from. If I look at it in a more granular manner in each subtherapeutic segment in which we are present, then I don't see a major market loss. There may be a couple of brands where we may be are slightly growing slower than -- lesser than the industry growth or the subtherapeutic segment growth. But all in all, it's not a major concern for us.
Okay, okay. Got it. Sure. And you did mention about domestic business ex of generics growing at a higher double digit. Would it be fair to assume that generic business would have been more like growing at 30%, 40% for us right now?
17% growth. And so last quarter was 14% growth.
Last quarter was?
14%.
1, 4.
Yes. And the current quarter is 17%. This is for the trade generics, I'm talking.
Got it, got it, 9 months.
Yes. So 9-month is 33%, but last 2 quarters is what have given the figure, 14% and 17%.
Okay. Got it. So another question is with regard to capital allocation. I totally appreciate management's call to give cash to the shareholders. But does it also mean that there are no adequate inorganic opportunities in India market? Or are we not so eager to assess any of them for second reason?
No. We are very much interested and agile on that front. And as you know, I think U.S. is -- India is one of the markets where these inorganic opportunities we would be interested in because now, U.S. doesn't make sense to make those kind of capital allocation for that. But we haven't been able to get a compelling case where it makes sense for us to make -- we didn't find any good quality assets so far, let's put it that way, which has a good synergy with what businesses which we have.
Got it, got it. And for this asset that we would have evaluated, how much, barring valuations, would it have on them to decide either way?
The valuations have a major role to play. It's all on what value you get it at, right? So for example, if you're getting it at a much higher valuation than what one would expect, then that leaves zero room for any bad year or downside. And you're paying upfront a 10-year worth of the business, so that's a bit scary for us. And that's the reason -- that's one of the reasons why we have been very, very careful with proceeding forward with the inorganic opportunities in the domestic market.
Fair point. On the Asia branded business, I totally -- I take the point. The growth over here has been fluctuating over a period of time. You tend to grow at a certain [ category ]. But would it help us understand more in granular which are countries you are seeing growth and which are countries that you are currently witnessing certain degree of [ recognition ]?
So we are not sharing those countrywide granular data. But overall, blended basis, this is where it looks at for the figures, which you see.
Okay. And would the past 4, 5-year history be good enough for us to go buy or there has been a change in the growth figure?
Yes, yes. I think that is something which definitely is the guideline, which you can certainly take it.
Okay. And one last question is on the margins outlook. In past, we always say, as a company, we'll likely settle around 31, 32 [indiscernible] to operate at the right utilization level. At today's juncture, do we see any kind of material change in the outlook for the margin trajectory? Or how should we see this?
We always talk about the margin level to be around the level, which is existing today. If you see my 9-month margin -- EBITDA margin, that is somewhere around 30%. So anything between around that is something which is definitely possible.
Our next question is from the line of Bhavesh Jain from Kotak Investments.There seems to be no response from this line. Meanwhile, we'll take a next question from the line of Tushar Manudhane from Motilal Oswal Financial Services.
Just on this NLEM price hike, just to understand. Given the fragmented nature of the industry, so we'll make 10% will be kind of possible kind of price hike or you would going to wait for the other players how do they react and then accordingly take the call?
No. We would not wait for other players. As a matter of fact, honestly, I would be surprised if any of the leading companies, which are almost our size or larger than us would not take the maximum permissible rise in the NLEM brands. So in that sense, we would not be waiting. We would be putting it into effect in the month of April itself.
Interesting, interesting. Given the kind of price hikes in NLEM and, in which case, non-NLEM also looks lucrative from the pricing perspective, but at the same time, given that we have a high base of FY '21, so will we be still growing at a healthy basis, double digit in India business next year?
Maybe it's a bit early to say. We would like to comment on this maybe start of the year, sometime in April, see how the next 3 months also go. There have been a lot of ups and downs in the Indian pharma industry because of COVID and whatnot. So what we are seeing at the top level at a blended average is not a fair view to look at it. So I would still like to reserve the comment for another maybe quarter.
Our next question is from the line of Ranvir Singh from Sunidhi Securities. Mr. Ranvir Singh, maybe request you to unmute your line and go ahead with your question.
On R&D side for fourth quarter, can you give some outlook because fourth quarter is a lot of filings would happen in U.S.? So what would be the R&D expense?
It should be around -- just one minute. I think it would be around the same level, but could be slightly elevated because of the ANDA filing costs, which are going to come in.
Okay. So full year should be in the range of 5% to 6%.
Yes. Full year, we expect it to be around 6%, yes.
Okay, okay. And secondly, on margin outlook because the branded business is anyway going strongly, of course, and I assume that branded business, especially in India, has higher margin. So is still the margin outlook for 9 months would be in that range going forward or even for FY '23? And even if we are -- we assume that price increase will also happen from April. So in that scenario also, the margin would remain the same or we can expect some scope to improvement from here.
I don't think there will be any improvement because of the price increase of NLEM, which is a small portfolio of 15%. So we need to see how the other portfolio behaves and how it will happen. But I think what we are talking about is a mixed basket. And mixed basket, definitely, there is price erosion in U.S., which we have to accept. There will be very less number of approvals, which will be there. So all those aspects also will have the influence on the margin. So we are expecting this margin to be around that [indiscernible].
Yes. So just help me understand. Like currently, we already -- with raw material prices or other [ input ] prices has already increased, even in that increased scenario, we are making the kind of EBITDA margin currently we have. So going forward, when we increase price of the final product. And obviously, already input cost has increased, and that is already reflected in EBITDA margin. So still, we will not see any increase in EBITDA margin there.
Yes. So I think it's very unpredictable. There's global inflation, where does it stop? if it remains at the current level or the U.S. price erosion as Arvind Jai said, how aggressive it goes into the next year and how do we factor those 2 components in the other things. But as we said, there is always a 1% plus, minus possibility does exist, depending on various combination of the product portfolio, which we do next year.
Yes. And sir, Institutional business, this quarter has been -- and sir, if you compare last several quarters has been lowest. So I believe that the lumpiness is there. But still, can you give some ballpark annual number, which we can expect? Or I can understand there would be some volatility there, but can we reach near about the annual performance we had in the last -- from last 2 years on an average basis?
No, no. It will not be there to the last year's level. So already in 9 months, we have seen there's a degrowth in the Institution business. And quarter-over-quarter next year also -- next quarter also, there could be some degrowth there, so very difficult to put a number on that.
[Operator Instructions] Our next question is from the line of Abdulkader Puranwala from Elara Capital.
Sir, just want to have your thoughts on -- so what could be the new geographies for growth [indiscernible]? You discussed earlier on the call where you said something where you're not comfortable allocating your capital on the Branded Generics side. Due to the [indiscernible] scenario, the margins are coming under pressure. So do you plan to diversify yourself within the geographies, what you have currently? And if so, what would be the preferred location, where you will try to -- or the preferred markets you would like to tap into?
No. I think probably, we'll have to correct the perspective. We have said we are careful in making the capital allocation for the U.S. So that's what the U.S. plans. [ AL ] business has already become 6%, 7% of the entire organization, which is the global [indiscernible] institution business. So moving the needle there doesn't really impact the whole organization performance for the -- on a full year basis. So I think that is -- slowly, at one point in time, that was a very big part of the business for Ajanta. Slowly, other businesses became big, and this became smaller. So this became a much smaller component there. So actually, [ AL ] is not such a major -- it's not going to be impacting the overall performance of the organization in a significant way. Other than these two, we've discussed that we are very bullish on the Branded Generics business, whether it is India or emerging markets, and that continues to be -- remain to be the outlook, that those are the areas where maximum [ efforts ] are being put in. And those are the -- going to be the vertical [ survival ] growth of the organization in not only coming year, but years, I would say.
Sure, sir. Got it. And just finally, would you still maintain your mid-teen growth outlook for the Branded Generics business?
Yes. Teens should be doable. I think probably somewhere low teens to mid-teens is the outlook we can, I think, look at.
As there are no further questions from the participants, I would now like to hand the conference back to Mr. Yogesh Agrawal for closing comments. Over to you, sir.
Thank you, everyone, for joining on to this call. And as there are no further questions -- sorry.
If you have any questions...
So if you have any more questions, you are -- you can reach out to our Investor Relations team, and look forward to seeing you in the next quarter call then. Thank you.
Okay. Thank you, everyone.
Ladies and gentlemen, on behalf of Ajanta Pharma Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.