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Ajanta Pharma Ltd
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Ladies and gentlemen, good day, and welcome to the Ajanta Pharma Q4 FY 2023 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. Thank you, and over to you sir.
Thank you. Good evening, and welcome to all of you. With me, I have Mr. Rajesh Agrawal, our Joint Managing Director; Mr. Arvind Agrawal, CFO; and Mr. Rajeev Agarwal, our AVP Finance and Investor relations.I hope that the results are already there with you. We continued our growth in branded generic business, which is our main stake and also outperformed the market going ahead. However, the year saw severe pressure on the margins with EBITDA going down sharply from 28% last year to 21% this year. This was due to the factors beyond our control, like increase in material prices, U.S. price erosion, increase in freight cost, et cetera. We have taken effective steps to contain this impact and are confident of regaining some of the loss margins in coming years.In spite of pressures on margins, our cash flow generation was quite robust and hence, once again, we have rewarded shareholders with the payout of INR 479 crores, being 81% of the PAT in form of dividend and buyback during the quarter. It reaffirms our commitment to pay back any excess cash to the shareholders of the company.I and our Joint MD will take you through business-wise performance for Q4 and 12 months FY 2023, along with comparison of previous year same period.It was overall a good year with total revenue for 2023 at INR 3,743 crores against INR 3,341 crores, posting growth of 12%. As you are aware, our business is divided in three verticals, branded generic business, consisting of India and emerging markets, U.S. generic business and institution business in Africa.Let us start with branded generic business. During the 12-month period, 73% of the total sales came from the branded generics, which is spread across India, Asia and Africa. This business has surety, scalability and sustainability for the long term. During Q4 branded generic's sale was INR 625 crores against INR 644 crores, posting 3% degrowth. In 12 months, sale was INR 2,690 crores against INR 2,382 crores, posting growth of 13%. This growth was in line with our expectations and guidances.To begin with, I invite Mr. Rajesh Agrawal, Joint MD, to take you through India business. Thank you, and over to you, Rajesh.
Thank you. Good evening to all of you. Let me discuss some of the key highlights of India business with you now. Our performance has been excellent on the back of new product launches, market share gains and price increase. India business contributed 32% in the total revenue during 12-month period. In Q2, sales stood at INR 287 crores against INR 245 crores, posting a growth of 17%. For 12 months, sales stood at INR 1,174 crores against INR 982 crores, posting a healthy growth of 20%. India business includes revenue from trade generic of INR 42 crores against INR 30 crores in Q4 and INR 151 crores against INR 117 crores in 12 months of FY 2023.During the year, we launched 23 new products, out of which 6 were first-to-market. Our MR productivity has gone up by 20% against previous year, on the back of consistent growth in business without any increase in MR spend. I'm delighted to mention that our overall growth was 2x to the IPM as per IQVIA MAT March 2023 with Ajanta's growth of 16% versus IPM growth of 8%. Even in all therapeutic segments, we are present in, our growth was much higher than the segment growth.In the covered market, we are fourth largest in IPM. In overall IPM, we gained 2 ranks in the last 12 months and stood at 27th as of the end of the year. It will be heartening to note hat in all our therapeutic segments, our ranking in covered market is amongst the top 10 with second rank in ophthalmology. As per IQVIA MAT March 2023, cardiology contributed 40%, ophthalmology contributed 31%, dermatology contributed 21% of our business and the remaining 8% is coming from pain. Four of our brands are appearing in the top 500 list of IPM.Now Mr. Yogesh Agrawal, MD, will take you through the other business performance. Thank you, and back to you.
Thank you. Let me now discuss some of the key highlights of the branded generic business in Asia and Africa, which contributed 41% in the total revenue during previous year. In Asia, let's start with Asia. In Asia, our business is spread over Middle East, Southeast Asia and Central Asia, covering about 10 countries. During Q4, sale was INR 238 crores against INR 263 crores, degrowth of 9%. Q4 2022 was elevated against the rest of the quarters as major countries saw increased demand after pandemic. In 12 months, sale was INR 957 crores against INR 813 crore, posting healthy growth of 18%.We launched 38 new products during the 12 month FY 2023 in the region. We continue to see mid-teens growth on the back of our robust product pipeline, increased productivity and excellent strategy execution across countries.Let's now move to Africa. In Africa, business is spread over West Asia and east -- sorry, West and East African countries in 20 countries. During Q4 sale was INR 100 crores against INR 136 crores, posting 26% degrowth. The growth was adversely impacted due to the strike in France for pension reforms, which led to considerable delays in the supply chain. The situation is slowly improving and we are trying our best to keep up the supply chain going. In FY 2023 sale was INR 559 crore against INR 587 crore, posting 5% degrowth. The full year degrowth can be attributed to [ INR ] depreciation against rupee from previous year by 5%. However, we have seen reversal of this trend and we hope to see mid- to high-teen growth in this market again going forward. We launched 8 new products during FY 2023 in the region.Let's move to U.S. generic. This was the second vertical of business and contributed 22% to the total revenue. In Q4, sale was INR 197 crore against INR 168 crore, posting 17% growth. In FY 2023, sale was INR 828 crore against INR 696 crore, posting 19% growth. We see price erosion stabilizing, and it has come down to high single-digit in our existing portfolio. At the end of 2023, we filed 5 ANDAs and also received 4 final and 1 tentative approval. We have 21 ANDAs awaiting approval with U.S. FDA.Africa Institution, this is the third vertical of business comprising of anti-malarial product and contributed 5% in total revenue. In Q4, sale was INR 49 crore against INR 50 crore, posting 1% degrowth. In 12 months sale was INR 190 crores against INR 106 crore, posting 8% degrowth. As mentioned earlier, institution business remains unpredictable and depends on the funds with the procurement agencies.With this, I will now hand over to Mr. Arvind Agrawal, CFO, to take you through the financial performance. Thank you. And over to you.
Thank you. Good evening to all of you and warm welcome to this earning call. For ease of discussion, we will look at the consolidated financials and provide year-on-year comparison. Let me take you through key financial highlights for Q4 and 12 months of financial 2023. In Q4, total revenue stood at INR 882 crores against INR 870 crores, hosting 1% growth. In 12 months, total revenue stood at INR 3,743 crores against INR INR 3,341 crores, posting growth of 12%.Gross margin was at 73% for Q4 and 72% for the entire financial year. U.S. price erosion, higher material costs, onetime inventory write-offs and INR appreciation against euro for a major part of the year adversely impacted it by about 3% in FY '23. As the euro-INR exchange rate is back to earlier levels and U.S. price erosion getting normalized, gross margin is expected to rebound to 74% to 75% in FY 2024. Personnel costs have seen increase of 35% in Q4 and 22% in the financial year. The increase during Q4 was on account of some regrouping of related expenses from selling expenses following the best practices.For 12 months, the increase in costs mainly relates to expansion in international field force by 50% and small addition in production and R&D. All these are the investments for future growth.Other expenses stood at INR 268 crores in Q4 and INR 1,124 crores in FY '23. This includes ForEx derivative loss in Q4 of INR 22 crores and INR 19 crores during the whole year. However, we closed the year with a net ForEx gain, which is included in other income. Logistic cost has impacted about 2% on EBITDA in the financial year 2023. However, it has come back to a normal level now and it should really give us a big benefit in the coming financial year.R&D expenses was INR 63 crores against INR 59 crores for the quarter. And it was INR 237 crores against INR 204 crores for the whole year, an increase of 16% over previous year. R&D expenses continued to be at 6% of revenue. With the above impact on gross margin and other expenses, EBITDA margin saw a dip during Q4 and stood at 17% of revenue from operations at INR 149 crores. For 12 months, EBITDA was at INR 783 crores or 21% of revenue from operations.Going forward, the benefit of 2% each from gross margin and logistic cost is expected to take EBITDA back to about 25% in FY 2024. Other income was at INR 99 crores for the year, mainly contributed by a ForEx gain of INR 66 crores without adjusting the unrealized age loss of INR 19 crores. There was a net gain in ForEx transaction of INR 47 crores for the whole year after adjusting unrealized loss. This reaffirms our prudent and robust hedge policy.Income tax stood at 20% for quarter 4 and 21% for the whole year. We expect it to remain at around the same level in FY '24. PAT in Q4 was at INR 122 crores against INR 151 crores, 14% of revenue. And for the whole year, it was INR 588 crores, which is against INR 713 crores last year, which is 16% of revenue. We incurred CapEx of INR 160 crores for the year 2023. CapEx, including maintenance CapEx for 2024 is expected to be around INR 200 crores, which also includes our new corporate overhaul CapEx. We have seen improvement in working capital cycle, with both inventory and receivables showing reduction in number of days.The ROCE stood at 22% and ROE at 18%. With improvement in working capital cycle, our cash conversion ratio was almost at 99%. With these highlights, I open the floor for the question-answer. Thank you.
[Operator Instructions] The first question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.
Sir, first on this employee cost, if you could elaborate this regrouping of related expenses.
Yes. So actually, the cost of incentives which are being given to be field staff, that was about INR 27 crores for the whole year. That has already been -- now it was earlier in selling expenses, but it has been regrouped to the personnel cost. So that is the small change which is there.
Okay. And henceforth it will be in the employee expenses only?
Pardon me?
And henceforth it would be in employee expenses only?
Yes, yes, yes, you are right.
So now that we've reached -- like we are at 73% gross margin, maybe another 100 bps we are guiding for next year, but just trying to bridge the gap of EBITDA margin of 17% in 4Q FY '23 to almost 24%, 25% for FY '24. If you could just explain that.
See, as far as Q4 is concerned, again -- you are talking about whole year or…
Right, the 4Q.
So 17% is Q4, right?
Yes, sir.
So I think 17% includes INR 22 crores of the ForEx loss also. So if you remove that, it will come to 20%.
In 500 bps also? Sir, still from 20% to 25% is the bridge, so.
So as I explained, whole year if you talk, then 22% is freight cost, which we are expecting to recoup and 2% in the COG. So 2% plus 2%, 4% improvement we are expecting from 21% to go to 25%.
Okay. And so just lastly on the [indiscernible] FY '23, it has been done in terms of filing as well as launches.
Yes.
But R&D cost has been sort of at a similar level as it was in the last month. So how should one think about the product filing and the growth for FY '24 for U.S. business?
So the R&D cost should remain on the absolute number on the similar range. So percentage-wise, it may decrease a little bit. And for the filings, we are looking to file around 6 to 8 ANDAs next year.
The next question is from the line of Rashmi Sancheti from Dolat Capital.
One question being on the employee cost and the other expenses. While I can see that because of the regrouping, your other expenses has come down, but your staff cost has come up. Can you just explain that this INR 24 crores of ForEx losses sitting in which line item? And it is impacting the margin?
It is in the other expenses.
Okay. But there is some ForEx gain also, right, which is sitting in above EBITDA or below EBITDA?
EBITDA and other income.
Okay. And how much is that? For the current quarter.
So it is INR 25 crores.
INR 25 crores. And so now what we see is that the staff cost is around 24% to 25% of sales. So going ahead when we estimate, it should be in this range only, right?
Yes, absolutely.
Okay. And does it include the expansion of the field force which has been taken into the international branded business, Asia and Africa?
Actually because some of the additions we had done during the year, so the full year [indiscernible] will come next year.
Okay. And how much that partial cost which is pending would come in FY '24? Any ballpark number which you can give? Additional ballpark.
It will be difficult to give you that number. But I think as you rightly said, as a percentage to sales, it should remain in that same range.
24% to 25%.
Yes, because we have given the guidance of about an increase of the sales being in mid-teens. I think 25% should be okay.
So from 21% to 25%, where we are expecting our EBITDA margin to move, it will majorly come from the gross margin improvement of 2% and logistic cost stabilizing. Am I correct?
Yes, you are absolutely right.
Okay. Another question is on Africa-branded business. I understand that the quarter 4, we had seen some sort of strike in [indiscernible] which you mentioned, right, for pension reform, and that delayed the sales. So the delayed sales, is it expected to come in quarter 1? So should we see that quarter 1 will have the deferred sales as well as the sales which is expected to come in quarter 1? So it would be a very strong growth or it would be -- the sales which is lost is lost completely. Also in 9 months we had seen a very subdued growth in Africa branded business. So just want to understand more on this piece of the business because your supply chain and everything is also pretty strong. Also what actual problem are we facing in terms of growth?
So 2 parts. One is some part of the business will get pushed out to the next quarter, but some lost is lost, it is difficult to recover. So we will see some parts of getting spilled over into the next quarter. One is that. And second is on the growth. So I think if you see the last 3 years CAGR, we have posted mid-teen growth. There has been some pipeline filling at times because of the COVID because of the opening of the COVID, some launches of the new products. So you see some strong growth in the previous year, which kind of tapered out in the next year. But overall, on a consistent basis, we are very confident. The health of the business is quite strong. And we don't foresee challenge in posting mid-teens to high-teens growth in the Africa.
And how is your Africa pharma industry growing on in the respective markets where you are present, the industry?
The industry also is growing in the low double digit.
Lower double digit.
Low double digit.
So are we confident that we should see a low double-digit growth once the sales get normalized in FY '24 and '25?
Absolutely. Absolutely. We should outgrow the market at least by 1.5x. So if the market is growing at low-teens, we are confident of posting mid-teens to high-teens growth.
We have the next question from the line of Amar Maurya from Alfaccurate Advisors Private Limited.
Sir, just to understand this 25% bridge, again. If I do like 2% COGS and 2% logistic cost savings and INR 25 crore of ForEx gains, then also even if I do this math for this quarter, we get 23.7% kind of a margin. So if you can help us with 25% margin bridge, it would be great. And secondly, I just looked at employee cost increase, what is the reclassification we did there?
Okay. So first, I will take the second question. The reclassification is just that there are certain expenses, which were related to employees, which were clubbed marketing expenses or selling expenses that has been brought to the employee expenses. So it's just a reclassification from other expenses to employee costs. But if you take both together, it will remain the same. There is no difference at all. In terms of the EBITDA reconciliation, what you need to do is you need to work out for the whole year. If you see FY '23, we are having an EBITDA margin of 21%. Of this 21%, as we mentioned earlier also that there were these factors which impacted, including the U.S. price erosion, including the raw material price increase and all those kind of things. But out of that, we will be able to recover in COG about 2%, including the euro-INR appreciation. So that also is now normal. So that also should help us. So total we should be able to get 2% benefit in cost of goods. And another 2% is something which we will get in logistics. The 21% plus 4% is about 25%. We will not be able to go to 28% immediately. We very clearly told you here last quarter also here also we are saying that we are talking about 25% plus around in 2024 EBITDA margin.
And second question sir like as you're targeting for overall a mid-teen kind of a growth, so what would be the growth we are expecting from the export business and primarily from the emerging and the regulated market?
U.S. will be in the low single digit, mid single digit. And the overall branded generic business, we are looking to grow at mid-teens plus/minus [indiscernible] On a blended base we should arrive at around the mid-teens. Africa Institution business, we are looking at a flattish growth.
Africa business, we are looking -- so both institution and branded, both, overall Africa?
No, no, no, no. Branded generic is all put together look at as one bucket, which are India, Africa and Asia. All put together, we are looking to grow mid-teens. And [indiscernible] will be the mid-single digit, let's say, 5% to 7%. And institution, we are looking at a flattish growth.
The next question is from the line of Kunal Randeria from Nuvama.
Sir, just in your presentation you mentioned that the price erosion in the U.S. is now normal. So I just want to understand what do you mean by normal?
Normal is about high single-digit.
Right. And sir, maybe if you can just maybe explain what is driving it? Is it maybe some new launches? Because you haven't done a lot of new launches. So I mean, have competitors withdrawn from a lot of molecules you were in, or you had some benefits from few products. Maybe can you just explain a bit more?
So we are looking to launch 5 products during the year. And existing portfolio, as we said that, I think we are looking -- we are estimating that the price erosion should stabilize to the mid- to high single-digit. So in combination of the new product launched and stabilizing of the price erosion on the existing portfolio, we feel comfortable that we should be able to post the similar kind of margins or maybe slightly improve it.
Sure, sir. But in your existing portfolio also, have you seen an improvement? And is it because competitors have withdrawn or just that people have become a lot more disciplined than what they were, let's say, a month, year back or so?
Right, right. Yes. So we have not seen significant withdrawals of the players. In product to product there may be one player withdrawing here and there. But in a market which is 5 players around 1 player withdrawing doesn't have very significant increase in the market share to any 1 company. So we have not seen such big disruptions in withdrawal. We have seen some products, some companies have withdrawn. Some of the base portfolio we've seen, I think now the price erosion is pretty much hit to the bottom, at least we feel so. So I think the price erosion should be more disciplined.
Got it. Got it. Second question is on the India business. Now NPPA has come out with its own list of products where prices have to be reduced. I think that included Met XL also, franchise. So has there been any impact in Q4? Or do you expect it in the coming year?
No. In the Q4, there has been impact in the month of February and March, but it was quite low, insignificant. And now, in April, because of the benefit of UPI, we have been able to increase the prices by close to 11%. So there has been an offset to that extent. The original price reduction done by the NLEM was in the range of 18% for Met XL. And we have been able to gain back around 11.3% due to the WPI. So the net impact on us and the industry is about the difference of it.
Sure. Sure. And just one last question for Arvindji. Arvindji, I'm still not able to understand your freight cost escalation. 3 years back, your freight cost would have been, let's say, 4%, 4.5% of revenue. Last year it was on 5.5%. And this time around, you said there's been a 200 bps increase. So it just seems that impact on Ajanta seems a lot more magnified than for the rest of the industry. So just to get your thoughts on this.
It is really simple. See, as far as Ajanta is concerned, we are selling all our materials in the refrigerated containers.
Most part of it.
Most part of it.
70% is exports.
See, if the proportion of our sales is skewed towards exports. So naturally, freight plays a very important role in our expenses.
The next question is from the line of Bharat Celly from Equirus Securities.
So I just wanted to understand on 25% margin. So I believe a large part of the benefit on interest rate, which we talked about, like 2 percentage point as well as some part of cost related to key raw material prices would have actually come down and benefited in fourth quarter as well. So from the fourth quarter going towards 25% seems the bit of aggressive one largely because we have seen some benefit this quarter, right?
Yes. But I think you need to continuously see the whole year. See, quarter-to-quarter, there can be variations because of many product mix because of the business mix, et cetera. But overall, if you see the whole year, it is 21% EBITDA margin, which you can see. And with that 21%, we are very confident that we should be able to recoup about 2% in COG.
Right. But is it safe to assume that large part of the freight would have normalized in fourth quarter?
Yes, to some extent and not in January, but February and March, yes, it has come down quite sharply.
And even the input prices, right…
Input prices, not much, but, yes, there was a -- but earlier inventory holding was something which was at a higher cost. So the benefit of the reduced prices in the first quarter -- that last quarter, I should be able to get only after May or June.
Good. Correct. And sir, second one actually on the U.S. market, we are seeing that there is a sharp decline sequentially. Is there any product which has seen extra competition? Or is it just general price erosion which has hit us? If you could explain that.
Yes, I think you must have seen, no, in the last quarter, Q3, we have already mentioned that there was a major sale of the product Oseltamivir, which was $10 million. So that is something which has gone away.
That was a product which is a very seasonal product. It comes for the season only. So if you take that out, we are at a running quarter trend, which is what -- in the previous 2 quarters, which we've seen. In fact, we've improved from that. Our earlier 2 quarter was around INR 180 crores. So this quarter we have done INR 200 crores in fact. So there is a [indiscernible] of Oseltamivir also and the part of the existing [indiscernible] posted together is INR 200 crores now.
Sure. So Arvindji mentioned $10 million [indiscernible] that product, right?
Yes. Yes…
Sir, during this quarter there was hardly any revenue coming out of that.
Yes, very small.
Right, okay. That's great. So sir, last one on the India market. Is it possible for you to break down your growth in terms of pricing, volume and new introductions if that is possible?
Yes, we have that growth. The composition of the growth, I will share with you in a second. Let me pull up the data. So the volume growth is 8% for us. And the price growth is 6%. And the growth from new brands, new brand launches is 3%.
The next question is from the line of Bino Pathiparampil from Elara Capital.
Just a follow-up on U.S. Any update on this [ Transix ] product? Has FDA come back regarding the API query?
Yes. So we have filed all the required data information asked by the FDA. We are now given the target goal date of Q2 FY '24. So if all goes well, we could expect approval and launch thereafter maybe in Q3.
Understood. When you say you look forward to 5 launches in FY '24, do you include this as one of them?
We are looking to launch 5 products, around 5 products. This is one of the 5 products [indiscernible].
Okay, this is one of -- one in that 5.
Yes, yes.
Any other limited competition products that could be part of that 5?
Yes, there are 1 or 2 products, limited competition, but [indiscernible].
Sorry, but?
Slightly smaller products [indiscernible].
Smaller, okay, okay, okay. You got tentative approval for the [ Topiramate ] recently. So is that the near-term launch or is it a couple of years away.
Yes, it is further ahead. It's not in the '24.
[Operator Instructions] The next question is from the line of Saurabh Savla from Multi-Act Equity Consultancy Private Limited.
This is [ Akshat ] from Multi-Act. So I had this question on employee cost. If you could quantify the amount of regrouping that we have done in employee costs and whether the entire amount has been done in Q4? Or we have done some regrouping in the earlier quarters as well?
No, the entire regrouping was done in quarter 4 and the amount is INR 27 crores.
Okay. Okay. So out of INR 224 crores, INR 27 crores is the regrouping. So the balance INR 197 crores. I just wanted to understand whether the MR addition that we've done in the exit quarter full impact of all the MR addition would have come. So going ahead, the absolute amount of employee costs should not grow significantly.
No, there is some addition still going on. So there will be some addition.
Small addition. But more or less, I think most of it is in baked in into the Q4. What you will see is normal incremental yearly increment cost which will come in now. But here we've seen a significant rise in the matter of cost which is over 5% and also. So I think that kind of increase will not be there.
Understood, sir. And sir, my one question was on the COGS. See, now we are very confident of recouping 2% gains in COGS. We also mentioned that already in Q4 some of the raw material prices have already corrected and that would already be in the Q4 exit quarter base. So I wanted to understand what gives us confidence to get back this 2% on a full year number, which on a Q4 basis looks like a 3% improvement in raw material costs that we'll have to do. So if you could just break this 3% up in different factors of improvement, how much will we get from price hikes from reduction in price erosion and from raw material costs going down?
Two factors. One is that there was some inventory which we are carrying, which still was there, which were [indiscernible] in the Q4. That was one part of that. And second part of it is, if you see the branded generic composition in the Q4, it came slightly lower because of the Africa business being slightly depressed, which is a high-margin business for us. So that one factor also impacted the EBITDA by Q4. So next year onwards, once we come back on the track on the [indiscernible] to the normal level and the inventory depletion of the higher cost getting through in the Q4. Both put together, we feel reasonably confident that we should be able to bounce back to the improved 2% there.
Okay. And sir, this 25% EBITDA that we've been discussing that we are looking more from a exit quarter perspective or from a full year point of view?
Full year point of view, full year.
And also it will be important to mention here, I think we have to look at our full year slowly for the next year. There could be variations quarter-to-quarter because in the export business, unlike India, where the supply chain is very tight and the transfer happened within 3 days, then export it is a longer logistic lead time, some inventory. But we are talking about all these guidances for the whole year. So I think there could be some variable variation quarter-to-quarter.
And sir, one last question. If you could elaborate a bit on the Franco Africa issue so that we could understand what has led to a significant decline in the branded Africa piece?
The export happens through France. And because of the pension, that strike which has been going on for a long time, the supply chain has been disrupted there. There will be a lot of backlog on the containers being received and forwarded onwards. So that kind of shows the supply chain there a little bit, which we are seeing now is easing out now.
The next question is from the line of Rashmi Shati from Dolat Capital.
Just on U.S. business on the product [ Vimovo ], if you can give updates because we are just waiting for the EIR on the [indiscernible] to get the approval. So have you received approval on this product?
Which product you said?
Vimovo.
Yes, yes, we have received the approval for that, and we are in the process of launching that product. We are advantage [indiscernible] U.S.
So we are expecting to launch in the first quarter?
Yes, yes, yes. Absolutely right.
And how do we see competition over in this particular product? Will it remain [indiscernible].
[indiscernible] good product to have. I think it's going to be positively adding to the top line and bottom line.
Okay. And on Topiramate, have you settled the litigation or we are still under the litigation?
No, we have settled the litigation now.
Settled the litigation, okay. And just last question, if you can give total number of imports as on FY '23, how much is it in India, Asia branded and Africa branded business?
So I think India is 2,800.
2,800 you said.
In India. And 1,300 in the exports [indiscernible].
1,300 in?
Export markets.
Asia and Africa branded.
Yes, all put together.
The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.
So this Africa issue is now -- just to clarify the -- is it more or less sorted and we'll see recovery immediately in 1Q? Or would we have a few more months for the Africa branded generics business?
[indiscernible] it is by and large streamlined to the maximum extent, so we don't expect that going forward in the Q1.
And secondly, on the other expenses side, like INR 260 crores, INR 270 crores, with maybe like 4%, 5% sort of a year-on increase is that sort of quantum which one should expect for FY '24? Or do we see a meaningful increase in the other expenses?
This INR 268 crore was the lowest. Actually, if you see the total for the year is about INR 1,124 crores.
But when there is this regrouping no sir?
Yes. So after the regrouping. So INR 1,124 crores is after the regrouping. So if you really see that INR 1,124 crores and then like that INR 1,124 crores should really go to about INR 1,300 crores also. So I think we should be talking about what INR 320 crore to INR 325 crore.
So what would drive this increase in other expenses?
Basically, I think sales and promotion expenses will be the major one.
INR 200 crore, almost, sir.
Yes.
Plus regular inflationary increases which will be there. Overall, the cost goes up every year [indiscernible].
Basically like all the costs are there no, administration cost is there, other manufacturing cost is there. All those costs are also having an increase, no?
The next question is from the line of Abdulkader Puranwala from ICICI Securities Limited.
Just if you could share some outlook on the India business? And how do you see volume growth coming off for next year? As well as what are the kind of launches you will be doing next year? Some color on that, please?
For the launches, we won't be able to share the sensitive data at this point, but we have a couple of good product launches lined up for the domestic, which would be first time in the country. Going back to your earlier one, we are expecting a growth of low double digit. The industry is expected to grow between 8% to 9% based on the various reports. We are yet to see how the first quarter actually really the growth is reported for the first quarter in IPM. But more or less, if it is 8% to 9%, our objective is to grow at low double-digit growth, which would still be much faster than the IPM growth rate. And the composition will again be -- it will be driven by volume growth as well as the price increases. The new brand launches growth will be a little lesser than the previous years.
Sure, sir. Got it. And sir, just one more question on the margin front. So I get it, you are guiding for 25% kind of EBITDA margin for FY '24. But then also, I mean, how do we look at our businesses now? I mean, in say, next 3 to 4 years, is a 30% plus kind of an EBITDA margin still seem to be achievable on the current set of products? Or we would settle down somewhere below that in the next 3 to 4 years?
[indiscernible] to give the guidance, but it should keep on increasing every year with the -- from the business, new product launches, the brand generic composition going up. So it should inch up more -- from the 25%, it should inch up -- keep going up every year we believe. Whether it reaches 30% and when it reached 305 is to be seen, I think.
[Operator Instructions] The next question is from the line of [ Harsh Beria ], an individual investor.
I have a question about employee costs, and it being 24%, 25% of sales. Isn't it a bit too high for the kind of business models we are in? Like most of our peers in the same like of branded generics business would have somewhere around 19% to 20%. So my question is, is this because we have invested a lot upfront in the last couple of years? And with growing sales, this will come down to 19% and 20%? Or will this stay at these levels?
One thing you should remember. One is that, as I mentioned earlier also, for the whole year, our employee cost is 21%. You have to calculate. It is 21% for the whole year FY '23. It's only in quarter 4 that there was some reclassification and also sales was down because of which you are seeing it as 25%. But actually, for the whole year it is 21%, and we expect this to remain in that range.
Perfect. That makes sense. My next question is, there was a lot of discussion on the margins. So it seems from all the commentary that this quarter has seen the lowest possible margins. And going forward, we will start seeing improvement in our margins. Is that a correct understanding?
Absolutely correct understanding. Absolutely correct.
Okay. And my last question is on our U.S. business. So in the earlier calls, we have had discussions about capital allocation. However, you are seeing a slightly cyclical business now that we are going through -- like we have gone through a very bad down cycle. Why are we not being more aggressive in pursuing growth, if you are assuming that prices have bottomed out and we have good product approvals, why are we having more aggressive? Like what will take us from the current $90 million on to the next level of $150 million to $200 million in the U.S.
Just because of the nature of business, it can go up in short term, let us say, assuming if the competitors, people pull out the products, there could be for a short period demand for the products. But then again, in 2 or 3 years, it becomes like a commodity kind of market, no? So again it could be players coming in and the price erosion happening significantly. So that is the reason. We are being very cautious on making the capital allocation on the product, product selection. We want to be sure that the products we select and the money we spent on it has a reasonably good chance of succeeding and making money. So that's the only outlook. We are being cautious, we're optimistic, not very -- we're still continuing with our program for filing the products for the next year and a year after. Just the numbers have reduced.
And we want to maintain -- so as a percentage of our consolidated sales, what is the ideal U.S. contribution for us?
Today, it is 22%.
And we want to keep it around that? Or do we want to take it up to 30% at some point?
I think it should remain in the same percentage, around maybe a few up and down, but it would remain the same vicinity.
[Operator Instructions] The next question is from the line of Mitesh Shah from Nirmal Bang Securities.
My question is regarding the margins. Until FY '20, FY '18, your margins would be about 30% and then being continuously coming down. Actually, a couple of reasons might be because of the sharp U.S. price erosion the your new plant commission that was dragging the margin. I was expecting that the now utilization will be improving, margins would be [indiscernible] going forward also, you expect in normalizing the price erosion. So why we are not able to expect the 30%-plus margins in the next couple of years which we have achieved already in '18 [indiscernible]?
Agreed. Agreed, you have achieved it. But if you see really in '18 it was 31%. But after that, it was 27%, 26%, 28%. So like it is in by origin the range of 27%, 28%. It is not beyond that. Because as you rightly said, the whole business was rebalanced. The U.S. business came in as a bigger component compared to what it was in 2018. And naturally all these things also have its own impact. Manufacturing factory is like what you only said that new facilities have come so costs have gone up. All those aspects are there. So I think 27%, 28% is something which we are really always been talking about, and that's why we gave you an elaborate reconciliation from 20% to 21% in this year. That 7% very clearly, we gave you a very clear reconciliation how it has happened. And out of that, now we are expecting that at least in 2024, we will be able to recover about 4%. Now balance 3%, how we will be able to recover when we will be able to recover, we are 100% sure that we'll recover. Question is when, how fast it can be. And that is something which I think we will not be able to say today. But as MD mentioned, it will be continuous improvement every year. We are going to see higher EBITDA margins year after year continuously now going forward.
Yes, I agree with you, but I again fail to understand that the new plant commissioned and the after 3, 4 years, you are not able to achieve that kind of margins. Initially, definitely, it would be a higher cost. And again, U.S., I think so, if you are expecting a single-digit kind of growth, it will be coming down in overall contribution and the -- definitely the price erosion are coming down again. That could be some mismatch which I am expecting.
I hope that it should happen. You are expecting towards 28% [indiscernible].
[indiscernible] I think the OpEx cost of manufacturing facilities it is here to stay. 2% increase in the [ RMPM ] cost because of the circumstances beyond our control are here to stay. What can one do about it? What can you do about 2% trade going up? So these are the factors which are beyond our control. Earlier we were low on the OpEx because we had very light asset. We have a lot of contract manufacturing. That had limitation. And the fact that we put this facility is to get better control on the quality, supply chain, scaling up of the business of the future. This cost got retained. So I get a feeling that having 13% is a wrong benchmark to put. I think we should benchmark us against the industry where we are still much better. With the 28%, 26% EBITDA also, I think we are in the top tier of the company. So I think that is the right benchmark for you to kind of calculate again, sir.
[Operator Instructions] The next question is from the line of Harsh Beria, an individual investor.
My question was about the M&A opportunities you were looking for in our domestic market. Is there any development on that front, given how many acquisitions these days we are seeing in the market?
Honestly, we have not found anything so far. Though we keep on evaluating every opportunity in the market, we are looking actively for that. But honestly, there is no clear opportunity at this point of time, which is there in front of us [indiscernible].
[indiscernible] and is this largely because we are more value-conscious by purchasing brands or doing inorganic expansion?
We have definitely. I think we are not in a hurry to just pay any price for the -- just to acquire or to increase the top line. But we are very conscious about it. We are definitely conservative. Question is, what is the right price and how we can add value. That is what we really see, and that is what will drive our M&A.
My next question was about our trade generics business. So now we are already at INR 40 crores plus quarterly run rate, so that this would imply an annual run rate of INR 160 crores. Is this business line EBITDA positive for us? And how do we see this business going forward? This has been the fastest-growing business in our business mix.
Yes, it is EBITDA-positive. And you're right, it has been -- it has grown very, very well. In fact, we have out-raised outsmarted everybody else who've been in the segment for far too long. We have done exceptionally well. In the last 3 odd years, we have ramped up the business to the scale of INR 150 crores odd. Going forward, I'm expecting a low double-digit growth for the trade generic business. Within this business also, our product portfolio is slightly more skewed towards the chronic nature of products as against the industry which is more than 90% acute or around that. We are slightly better placed than that, intentionally so. So going forward, I think the growth rate should normalize. Our objective for the next year is to grow in the low double digit also in line with the India business.
Okay. And my last question was about the capital allocation. So unless we see very high very good ROIC CapEx plans, we will be returning most of the incremental free cash flows that we generate to the shareholders like they've been doing for the last couple of years?
Yes, absolutely right.
Okay. And I would like to really appreciate this viewpoint of the management. Not a lot of companies do this. And I feel this is a very, very judicious use of capital.
Ladies and gentlemen, that was our last question for today. I would now like to hand the conference over to Mr. Yogesh Agrawal for closing comments. Over to you, sir.
Thank you, everyone, for joining this call. In case if there are any further questions that remain unanswered today, please reach out to our Investor Relations. Thank you so much.
Thank you. On behalf of Ajanta Pharma, that concludes this conference. Thank you for joining us. You may now disconnect your lines.
Thank you.