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Alkem Laboratories Ltd
Earnings Call Analysis
Q2-2024 Analysis
Alkem Laboratories Ltd
The company showcased strong operational performance for the quarter, with notable year-on-year revenue growth of approximately 12%. Gross margins improved due to reduced raw material costs and price erosion in the U.S. market slowed down, showing positive trends from the previous high teens. A strong bottom line was reflected by a net profit after tax of around INR 620 crores. Coupled with cost optimization efforts and operational efficiencies, the company is in a solid net cash position and expresses confidence in surpassing the mid-term guidance of 16% for 2024.
The U.S. business is experiencing slower price deflation, currently in the mid-single-digit range of around 5% to 6%. This moderation provides a hopeful outlook for pricing stability moving forward. The company has not relied on any significant one-time opportunities to maintain its growth and performance in the U.S. Critical to its stability, the improvement in EBITDA margins also started to contribute positively to profitability, thereby enhancing financial performance.
In the domestic market, the company is focusing on high-growth areas like cardiac, diabetic, and CNS chronic therapeutics segments, which are experiencing strong double-digit growth. Instead of manpower-led expansion, the focus is on building a few strong brands and increasing productivity, suggesting a strategic shift towards more profitable growth. The executive commentary points towards improvement in gross margins and a possible uptick in future profitability as a result of this shift.
The company's gross margin has seen improvements due to better product mix and ongoing cost reductions. Although specific numbers are not disclosed, the commentary suggests the combination of these factors is starting to have a significant impact on EBITDA margins overall, contributing to the financial health of the company.
The company continues to focus on R&D, indicating it's near achieving its spending targets in this area. There's also an openness to exploring merger and acquisition (M&A) opportunities, particularly in the chronic segment and possibly in the OTC consumer space. The strong cash position enables the company to consider M&A without incurring debt, and there is now a more proactive stance on evaluating potential acquisitions compared to previous quarters.
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Ladies and gentlemen, good day, and welcome to Alkem Laboratories Q2 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. And now I will hand the conference over to Mr. Tushar from Motilal Oswal Financial Services.
Thank you, and over to you, sir.
Yes. Thank you, Sheela. Welcome to 2Q FY '24 earnings call of Alkem Laboratories. From management side, we have Mr. Sandeep Singh, Managing Director; Dr. Vikas Gupta, CEO; Mr. Rajesh Dubey, Chief Financial Officer; Amit Ghare, President, International Business; and Amit Khandelia, VP Finance. Over to you Amit.
Thank you, Tushar. Good evening, everyone, and thank you for joining us today for Alkem Laboratories Q2 FY '24 Earnings Call. Earlier during the day, we have released our financial results and investor presentation and the same are also posted on our website. Hope you have had a chance to look at it. To discuss the business performance and outlook going forward, we have on this call the senior management team of Alkem. Before I proceed with this call, I'd like to remind everyone that this call is being recorded and the call transcript will be made available on our website as well.
I would also like to add that today's discussion may include forward-looking statements and the same must be viewed in conjunction with the risk that our business faces. After the end of this call, if any of your queries remain unanswered, please feel free to get in touch with me.
With this, I'd like to hand over the call to Mr. Sandeep Singh to present the key highlights of the quarter gone by and strategy going forward. Over to you, Sandeep.
Thank you, Amit. Good evening, everyone. As many of you are aware, we recently announced the appointment of Dr. Vikas Gupta as the Chief Executive Officer. Dr. Vikas Gupta has over 2 decades of experience in pharmaceutical industry and his leadership and vision will play a pivotal role in our future growth and strategy. We are excited to have him on board. I formally welcome Dr. Vikas Gupta on his first analyst interaction.
Thank you.
We are pleased to report strong operational performance in the quarter, supported by significant gross margin improvements and operating leverage. We have observed a favorable trend in raw material costs softening, which has positively impacted our cost structure. Price erosion in the U.S. market has slowed down from high teens in last year. I am confident that our ongoing cost optimization efforts will persist in driving improved performance.
In this quarter -- it proved to be a good quarter for the company, reaching a year-on-year revenue growth of approximately 12%. Our EBITDA margin stood at 21.7%. While net profit after tax for the quarter is around INR 620 crores. During the quarter, we generated approximately INR 470 crores in cash, reinforcing our balance sheet to establish a sustained substantial net cash position of around INR 2,900 crores as of September 30, 2023.
Coming to our domestic business. We experienced a lackluster quarter 1 and this trend continued in this quarter 2 due to sporadic and delayed monsoons. However, there was a noticeable improvement towards the end of quarter 2 with a particularly positive upturn in the month of September. We are eager to capitalize on this momentum and anticipate stronger performance in the upcoming periods. Our growth during the chronic therapeutic segment continued to surpass market performance.
During the quarter, we advanced by 2 ranks in antidiabetic and 1 rank in neuro CNS and cardiac therapy segments. Our trade generics franchisee remains a key driver in our growth journey within India. Moving to international business. For the second consecutive quarter, our international business has demonstrated its strength by surpassing INR 1,000 crores for the quarter. The performance of U.S. business was driven by volume growth in our core operations.
Other international market growth was led by good performance in Chile, Europe and Kazakhstan. And even Philippines to a certain extent. During the quarter, we have received 4 ANDA approvals, including 1 tentative approval. All our manufacturing facilities supplying to the U.S. are having an EIR as on date. We aim to sustain and carry forward this performance momentum into the remaining part of the year with the determination to surpass our earlier mid-term guidance of 16% for '24.
With this, I would like to open the floor for Q&A.
[Operator Instructions] We take the first question from the line of Saion Mukherjee from Nomura Securities.
Sir, just a question on the U.S., we have seen a good increase quarter-on-quarter. If you can elaborate -- you mentioned about volume growth, but are there any seasonal factors? And how should we think about the next 2 quarters? And also from a slightly medium-term perspective, how should we think about U.S. in the backdrop of we have seen some reduction in R&D costs, just 1 ANDA filing in the first half, because earlier there was a bit of conservativeness with respect to the U.S. So beyond the next 2 quarters, how should we think about U.S. moving up in FY '25, '26?
Sure. Mr. Amit, can take that question, please.
Thank you, Sandeep. Saion, with first part of the question, there has been a small seasonal effect in the quarter 2 numbers towards end of September. And honestly, the season never actually ended this year, the growth for anti-infectives has been strong since the last season started. Other than that, there has been nothing onetime or nothing substantial that contributed. So it's kind of overall business that contributed.
For the next 2 quarters, obviously, our base is now higher. So repeating this kind of growth, obviously, is going to be challenged year-on-year, that is. But we are obviously looking at overall full year FY '24 over FY '23, we're looking at high single-digit growth in dollar terms. That's where we stand. On the R&D side, I'll hand it back to Sandeep and Dr. Vikas.
So on the R&D side, I think H1 is not an indication of predicting how many Indians will file for the year. So they will be back-ended, but we'll be filing close to 8 to 9 ANDA. And one. And secondly, in small molecules, we have cut back some R&D. I mean, you all are aware that we are doing clinical trials for denosumab for U.S. market. So it's not that we are kind of really cutting back or getting very negative on the U.S. We have just decided to allocate slightly less money and also change the color of our spending for small molecules, so let's say, hopefully, more complex things.
Okay. And just 1 more question on the tax rate. You have guided for, I think, higher tax rate earlier around 18%. So where do we stand? Is that guidance holds for this year and next year?
Yes, Saion. Yes, our earlier guidance was somewhere close to 18%. But we reviewed our revenue generating from eligible unit, that is Sikkim. And some bottleneck we planned out and we revised our guidance from 18% to 12% to 15% for this year.
And sir, this will hold for next year as well?
Next year, we'll come back to you during our third quarter's result, but I think we'll be somewhat closer to it.
Okay. And when does this Sikkim benefit last? And when do we see a step up in tax rate?
March 26 is last. So from April 26 onwards, we don't have fixed benefits over there.
We take the next question from the line of Kunal Dhamesha from Macquarie.
Just continuing on the tax rate. So we are now guiding for 12% to 15% and H1 is around 9%. So does that mean that we are more or less would be at 18% for the next couple of quarters?
On an annualized basis, we work out our tax. But in this half year, there are some elements towards catch-up. That's the reason it is on lower side. But on an annualized basis, our estimate is for 12% to 15% only Kunal.
Yes. So that means second half would be 18%, right?
Not 18%, somewhere around 16% kind of, 15%, 16%.
And secondly, on the U.S. business, you said that the price erosion has kind of reduced, but any number that you would or range that you would like to put out -- so earlier you alluded it was into like low double digits. I mean, where are we now and what has kind of changed? And how long do you see that continue?
Currently, the pricing deflation is in the mid-single-digit numbers, around 5% to 6%. That's where it is. Future, we hope it remains in those levels, but future is future.
And have we supplied any shortage product in this quarter, which would have helped us?
No. Onetime opportunity is perfect. Significant onetime opportunity. That will answer your question.
Okay, sure. And the last question on the India business. So we were in the process of expanding our field force by around 10%. So are we kind of more or less done there. What is the update?
Yes. So on India business expansion, I think we are more or less done. So we are not planning any big expansion in India business. The focus will be on increasing productivity now. And whatever people we have added in the recent years, we are just planning to now create the operating leverage and get the productivity up for our people in the business. That remains our topmost focus.
And what would be the [indiscernible] number as of now and the line manager?
So we have around 12,000 first line. And then proportionately, you can take the number of managers.
The next question is from the line of Rashmi Shetty from Dolat Capital.
On the softening of the raw material cost, have you seen correction in penicillin and cephalosporin prices?
Yes. So the softening of API prices, we can feel, but a few [indiscernible], I think still it has not come back to equal this level, and particularly product where PenG takes rise. So PenG, still it is still going on at $30 level. So I think pre-COVID it was somewhere close to $8 to $10, and now still it is at $28, $30. So you can understand still it is there. But rest of the major APIs we feel more or less it got softer and we hope going forward for a few months, at least, we'll be able to have a similar kind of situation for APIs.
Okay. And so with the improvement in the India business and the base improving in the updating price erosion in the U.S. business, do we upgrade our gross margin guidance to have come currently. I mean, you had guided earlier 59% to around 60%, 61% now for this year?
Yes. Gross margin improvement is, of course, there, and that is a good thing. And if you recollect in our last earnings call, the issued guidance of 59%, 59.5% on an annualized basis. I think we are going to remain. Of course, you rightly said beside API, a better product mix and particularly with this business, we got better on gross margin there. So I think things are going as per our estimate only and API prices, better the product mix and all these things are helping us. And we are hopeful that guidance we have given, we are going to remain there only and not below that.
Okay. And sir, on the India business, if you give what was the trade generic business contribution? And what kind of growth have we seen in that business?
So around 17% to 18% is what our trade generic in contribution. That's around 25% kind of, 20% to 21% kind of contribution. And the growth has been around 6% to 7%. So that has been the trade generic.
Sir, [indiscernible] maintaining our high single-digit growth guidance in the domestic business?
Yes, pretty much. And that is what -- where we are trending mid single digit, but we are expecting it to be higher single digit on an annualized basis.
Okay. And my last question is related to the Enzene Bioscience. What was the sales contribution which has fallen from there. And how do we see the profitability also in this quarter?
Sales contribution you asked Ma'am?
From the CDMO and biotechnology products from the Enzene Bioscience?
The quarter was around INR 80 crores -- in the quarter 2. And this actually was on profitability.
Yes. On the margin point?
I mean slightly negative but close to breakeven. But I think next year, we will be closer to breakeven. I think this is very early stage for biotech. So honestly, for the next 3, 4 years, we really don't -- should not expect it to like generate lot of profit. Even though even if they break even, but I think its growth is a priority.
Sir, on the sales front for Enzene Bioscience, we have seen a sharp jump from quarter-on-quarter. So we've done any new launches during the quarter?
I think plenty of new launches. Enzene also does a B2B business with other pharma companies in India. So yes, they have driven a lot of partnership. We have launched 6 products already, I guess, the seventh one is approved. It is the generic of Lucentis. It is ranibizumab. So Enzene will have a -- it's getting to take off now.
The next question from the line of Bino from Elara Capital?
Congrats on a great set of numbers. just to explore a bit further on the margin. So you have said that these are broadly sustainable, but just to drive a little deeper, this quarter margin has come exceptionally higher with both gross margin as well as other expenses being lower. In the light of this, do you think this level is sustainable going forward at these levels? Or we should think about it like somewhere in between where it was and this quarter?
I think we -- forget the quarter, quarter is great, but this is not sustainable on an annual basis. I think we will be close to 16.5% for this year, year ending.
So this quarter, in that sense is a bit tough. Okay. And second, any guidance on any update on launch of dabigatran and -- in the U.S. and [indiscernible] in the U.S.?
Amit, you can take that. But knowing Amit, we don't give guidance. Amit, you can take it.
We don't talk at the product level, but dabigatran we obviously launched. We are the only -- one of the 2 generics which are approved, and we continue to face supply chain challenges.
Okay. And any indication of resolution of those supply chain challenges?
We are always working towards resolving them sooner, but then there are few things required at FDA end as well because we are adding a secondary source of API, I think we have disclosed that earlier. And we are sort of depending on that. And that obviously needs approval from FDA. The primary source obviously continues, but we don't really get applies from there. So that's been a supply chain challenge for us.
Okay. And you don't want to guide on [indiscernible]?
No, [indiscernible], we haven't launched to be -- haven't approved -- haven't been approved and haven't launched.
We take the next question from the line of Bansi from JPMorgan.
Just showing on margins once again. So this -- in this quarter, we are at 61% and this is despite PenG prices remaining elevated. If you were to just take a medium-term view and assuming that PenG prices do ease off with the production capacity coming on stream next year from Aurobindo. What is the upside that one could expect on the gross margin front?
See, Bansi, our estimate it says our gross margin is going to be remained somewhere close to 59.5% to 60%. Of course, we have considered PenG price what is going on today. So nobody knows if price comes back to, say, $9 then accordingly, there would be upside.
If you get pass it on, you never know.
So -- but we are realistic in our estimate. And we feel on an annualized basis, we are going to remain so close to our guidance.
Even Aurobindo when they come on stage, it doesn't mean get it cheaper. I mean -- we don't know yes, it will be placed as it comes.
But even if they were to, say, sell at the market price, is there any savings from a ForEx perspective or from logistics cost savings perspective?
Yes, savings are going on. They foresee those numbers. No, PenG, there is no saving.
Bansi, I think it is hypothetical as on date. We will have more clarity on it once that really sees -- that hits the market. So before that, anything would be only speculative.
Okay. Got it. And secondly, my question is on employee cost, that has reduced sequentially and year-over-year as well. So any specific reason for that?
We have run internally various cost-saving projects and the cost is lesser because we have optimized our manpower costs in plants and R&D especially. So that is sustainable and that is something that has really resulted into it. Of course, we don't see it sequentially continuing to fall. But I guess, the initiatives that were taken that have sort of resulted in this kind of savings on the manpower.
So basically assuming normalized growth on this base from here on numbers?
Yes.
Okay. And lastly, my question is on our strategy for the chronic business of par. So if I were to take a longer-term historical trend, Alkem's market share has remained somewhere around 1.8%, 1.9% in the chronic segment. We've been in the business for some years now. On a small days, the growth rates have been good. But how do you make meaningful gains from here on? And how do you increase the productivity of MRs in this particular segment from here on?
Absolutely. So chronic, we have a clear strategy that we have in place. And that's one of the most important areas and levels of growth for domestic business in India. Even now, we continue to outperform in 1 or 2 segments in chronic, especially if you will look at the antidiabetics, the recent launches have done pretty well. And there, we have much higher market share than as compared to the overall market share in chronic business.
As you said, we are focusing on improving the productivity and getting our top line growth as well as a profitable top line growth in -- especially in the chronic segment. So I guess, our journey of growth in chronic would continue, we would continue to beat the market in chronic, especially on the antidiabetic side and cardiology and CNS. These are the areas where we are making good inroads, especially with the key products that are going to be big brands for the future. So in the coming quarters, you will see good growth coming. Continuing to come out of the chronic.
And the investment pertaining to MR here are all done with?
Yes. So as I mentioned, there are no expansion plans, so to say. Of course, there will be minor additions here and there, which we may continue to do as and when the business needs it. But the game plan over there is more on increasing the productivity. And that's the prime focus and chronic whatever manpower allocation also had to be done, that is done. That is in place. Now the whole game is about increasing the productivity and gaining market share.
[Operator Instructions] We take the next question from the line of Hussain from [indiscernible] Capital.
Yes. I just wanted to understand on the chronic side, how are we planning to ramp up and increase our share in the chronic side in the overall share of our revenue. That is the question number 1. And secondly on the U.S. side, as we see most of the pharma companies, I think that the pricing pressure [indiscernible] and now most of the companies whose base business has started to improve. So how do we see our business improving? And how do we see things going forward? And since we are now conscious on filing the ANDA and capital allocation. So since the U.S. business has started to improve, so how are we strategizing our growth in the U.S. piece? And how do we see the U.S. as a share of the total revenue increasing going forward?
So I'll take it first on the -- first on your question of chronic, I think I already answered when Bansi was asking this. Chronic is a very important area, an important lever of growth for us at domestic. Our key focus areas over there, which are cardiac, diabetic and CNS. So all these businesses are growing strong double digits. So that is how I'll put across in terms of the growth numbers. The growth will be largely -- it is not a manpower-led expansion-led growth. It is now going to concentrate on a few brands that we're going to build for the future, and that's what is going to drive the growth. That's on the chronic side.
And we are improving our profitability of that business with every passing quarter. That's the other piece in terms of the chronic business. With regards to the U.S., like Amit also already answered, the price erosion that was seen earlier in the U.S. market, has eased out this year. And same is the trend that we have also seen in our business. So our business also has not seen that kind of price erosion that we were seeing earlier.
So we are pretty much in line with the market. Now in future, whether we prices again begin to deflate? Only time will tell. But we -- our expectation is that, that should not be the case. Because we are assuming in many segments, the prices have sort of bottomed out or they will continue to erode at a mid-single-digit kind of degrowth that we would see on the pricing.
With regards to ANDA, I think we've already answered that we are targeting around 8 to 9 filings even for this year. So going forward, we are picking up those products and those markets where the payback of entry to the market is much more profitable than what it is and -- which are less likely to see that kind of price erosion. But in U.S. market, how it plays out, it's only after the entry of the product to the market that we will get to realize -- that we'll get to see.
And just 1 question on the anti-infectives. So our growth has been 3.7% in the first half of FY '24, which was lesser than the IPM growth of 5.7%. Any specific reason where we lack in terms of the anti-infectives?
So I guess we are pretty much in line, I would say, more or less a little bit here and there as compared to the overall market growth, but that's largely on account of our higher dependence on certain geographies, which saw much sluggish growth even in terms of market. So weighted average for us has come into play. So I think it's -- but that's not too much of a concern. We are -- I would say, on an H1 basis, we are more or less a little bit here and there in line with the market growth.
Got it. Got it. And just last one question. So the new CEO, Mr. Vikas Gupta has joined in? So any specific mandate...
This is Vikas this side who is answering your questions.
Sorry. So just last 1 thing. So just wanted to understand, sir, any specific mandate that has been given to you in terms of the company's growth that has been given in terms of how to streamline or how the overall growth and taking the company to the next level. I just wanted to understand from you?
So no different from what the guidance has been given to the market in every quarterly call. So I guess it's pretty much the same mandate that I have, and I will make sure and make my best efforts to meet up all the expectations that have been laid out.
[Operator Instructions] The next question from the line of Chirag Dagli from DSP BlackRock.
Has the full benefit of cost savings initiatives in the U.S. played out in the second quarter or more of that is expected as we go now?
Cost control is this what he asked. More or less. But I think it's ongoing, but yes, more or less. We can't keep cutting it to the bone. So I think we have done that more or less.
Understood, sir. And sir, the U.S. prices still seem to be eroding, albeit, at a lesser extent, but that should not have helped our gross margin improvement, correct? Because prices still continue to erode unless raw material prices have actually fallen even more than the erosion.
In fact, I was talking on mix -- our sales mix. So the product having better margin, they contributed more in these sales. So that was...
So U.S. margins -- U.S. gross margins, how would they have behaved, sir?
So if better margin products we sell more, then definitely, we are going to have better gross margin also.
The mix in the U.S. is also better, is what you are indicating?
We are talking about mix in U.S. Primarily, yes.
Understood. And this is the last question if I can squeeze in, sir. How has October been for the India business?
Yes, it's been fairly in line with the market. So it has been a good month.
The next question is from the line of Nithya from Bernstein.
The gross margin expansion.
Nithya, you are not clearly audible.
Is this any better? I've just come closer to the mic?
Slightly better, but we'll try to best. Go on.
So on the gross margin expansion, what I'm trying to understand is, even though you have achieved a substantial expansion in this quarter, you're still guiding to a fairly subdued number by the end of the year. So if you can help us understand what were the contributors? At least if you can rank order the different contributors' raw material prices improvement, U.S. pricing improvement, mix improvement, so that we understand what is possibly one-off and what is possibly likely to sustain in the future?
So there is nothing one-off in this quarter, Nithya. And our guidance is for analyzed. So -- in fact, guidance we have given earlier, I think nothing significant change is going to happen. In this call only earlier, analyst -- he asked about what is going to happen when API prices is going to get further reduced. So all those are future and we do not want to comment. Our estimate and understanding business projection we have, we are confident we'll be matching 59.5% guidance we have given. And this I'm talking on annualized basis. Quarter 2 is not in all this tech indicator for annual. So 59.5%, I think we'll be able to achieve.
So just to add to it, Nithya, the mix that we have in U.S. -- we are not sure whether the same mix would continue in the coming quarters as well. So that you may still -- if you want to qualify as a one-off, you may look at that. So we -- whatever has been the addition on account of mix in U.S. may not -- we may not see. But whatever has been on account of the raw material pricing easing out, we expect it to remain that way, if not become better.
Thank you for the clarification, Vikas and good to see you on the other side of the table. I have just 1 more question on denosumab. What are your thoughts on how you plan to commercialize the product in the U.S.? Would that be in house? Will you find the partner?
Denosumab, yes. So I think we can do it in-house, but we're also open to find a partner. See, we are still in the early days of switchability and all that in the U.S. So 2026 is what we think we could do later in '26. So I think we will reach that stage soon. But as of now, I think we could do it on our own.
We'll take the next question from the line of Gagan Thareja from ASK Investment Managers.
Yes. Sir, the first question pertains to the cost-cutting program. In the start of the year, you had indicated that for U.S. specificity, you had a INR 250 crore cost-cutting program. That's the annualized number. Are we trending at the INR 250 crore annualized savings?
So I don't think INR 250 crores, it was alone for U.S. I think we never quantified any amount or outerlying any amount on account of cost-cutting. Yes, we do have EBITDA margin improvement rise and not to a certain extent on larger extent that has started contributing to our profitability. And that's the reason we started having better EBITDA margin also. So it is a combination of USA. It is combination of R&D, domestic plants also serving to USA and even plants serving to domestic business. So it is all across.
So I understand that, sir, with the number I'm simply quoting from the reference to your past conference call. So?
Yes. So that was not for U.S. That was overall corporate. That's what we are saying. We're not saying that numbers quoted was wrong, It was not for U.S. That's all we are saying. So the India spend, a lot of stuff also. R&D.
But have you been able to achieve that target? Or you feel there is...
Close to it. I think from the numbers you can see that we are doing well. So we're obviously achieving it.
And -- I mean, you indicated that India growth in the chronic therapies now the focus is more on profitable growth, you're looking at improving sales productivity in terms of that -- that is another margin lever. If you're able to execute what you intend to, which is to improve productivity. Theoretically speaking, your margins should see further room for growth, even with gross margins being where they are. And in any case, gross margins improve as chronic grows at a higher pace than acute because it comes with higher gross margins. Is that line of thinking logical?
It is absolutely logical. But we gave you guidance of this year. It doesn't mean that we will not improve. So obviously, logic is correct. I don't know what are we going to get at, but yes.
And that's what we intend to do.
And the final one, sir. Any thoughts on capital allocation given that very strong cash position that you have?
I think same as I said last time, but we'll be slightly more open to M&A opportunities going forward. But one should not read too much into it. We'll take the time to understand, but we are more open than like last few quarters, what I've been telling. So we will scout for some M&A opportunities in the chronic segment and things like that. However, don't expect anything to play out in the next few months or something like that.
Right. And then final one, ROW, you've had a good year this year so far. Could you elaborate and then going to why we have seen that strong leg up? And can we think of a higher growth as being sustainable in the ROW markets for you?
Yes, I think it's sustainable. Amit, maybe you can take that, Amit, I'm sorry, but yes.
No, no, you were answering that, right. I mean, yes, it's very much sustainable. We have gone to only a few geographies that we've targeted. And we are obviously trying to grow business in those geographies. At the same time, obviously, every year, we try and add 1 or 2 markets to enter. So the growth that we witnessed is a combination of all of that, and it is very much sustainable.
The next question is from the line of Madhav Marda from Fidelity Investments.
I joined the a little late. I just wanted to check that the U.S. sales, which you've said that mix tailwind might not last. Just wanted to understand what happened here? Is this a one-off opportunity? Or what exactly paid out? And then why doesn't it continue? If you could just help us on this front?
Amit, you can take that tough question, please.
Sure. No one-off, so there were no one-offs, but a combination of a few things. First and foremost, obviously, lower price deflation compared to previous years. Second is the first half of last year was a low rate. So growth here obviously looks better and some new product launches and overall product mix that kind of helped us. From seasonality effect, the flu season and the overall season never really ended from last year. So the summer month also had good growth on the anti-infectors, so a combination of all that has led us to these numbers.
Okay. You said that tailwind. Did I hear it as it may not continue in the coming quarters or it will continue?
It wasn't about tailwind. What we said was the mix that we have got in this quarter. may not exactly be the same in the coming quarters. So there are -- the product mix might change, it might change the gross margin in the U.S. business, just to clarify.
[Operator Instructions] The next question from the line of Kunal Dhamesha from Macquarie.
One of the denosumab, what is the expected R&D spend on this product?
Yes, it will be like between $30 million to $40 million. This is a clinical trial cost. So -- this is a CT cost, R&D cost you could add up.
Okay. And this is right now in the R&D phase, not in the clinical phase?
Absolutely, yes, yes, yes. In Phase I, Phase II.
Okay. And this $30 million, $40 million, is it somehow baked into current R&D number, some form or?
In every form, marginalized form.
So how many quarters it's going to be there?
I think it is going from the few quarters -- last few quarters, maybe for more years it is going on. On the lumpiness, I'm not sure. It will go on for the next 6 months, I think -- 6 to 9 months.
The reason I'm asking is that R&D is like down almost 10% on a first half basis -- in first half on a year-on-year basis. So I'm just.
Yes. As I said, it's not like a H1 is equal to H2. So even we have filed lesser ANDA. So H2, you'll see a lot more ANDAs and things like that. So yes, we have cut some or least spend on small molecule, as I said earlier. But we continue to spend on R&D.
And second on the trade generic business, we said it's grown at around 6%, 7% year-on-year in this quarter. So is it primarily because of the excellence of the Q3? Or is there any competition?
No, no, it's absolutely. It's more to do with seasonality because on the generic side as well, we have big and anti-infective products. So they have seen sluggish growth. Otherwise, there is no major reason for that.
Okay. Perfect. And last couple of questions on the U.S. business. So one on the dabigatran. Would we have supplied some channel filling quantity in this quarter?
Mr. Ghare, you can take that.
No sales on dabigatran in this quarter.
But I think we earlier said we launched the product in this quarter?
No, we did not say this quarter. Amit just said, he has launched it. He did not mention any launch in this quarter.
We launched in 2022 last year -- June 2022 or July.
Okay. And since then, we are facing the supply issues on and off?
We've done maybe small feeds after that or some sales after that as well. But certainly not this quarter.
Okay. Perfect. And last one on [indiscernible]. So is there anything pending from our side or is it largely pending with the U.S.?
I think it is still with the FDA, like I said.
I was just saying to take the question. Nothing sir, please continue. Sorry, Sandeep.
No. So it's pending with FDA and then obviously, the launch is pending. So we are not forecasting it in immediate future.
The next question is from the line of Yash Tanna from ithought PMS.
We spoke about productivity improvement. So can you foresee just a breakup of productivity between acute and chronic and company overall? And what sort of productivity improvement are we targeting going forward probably in this year and the next?
So currently, we are at around; overall basis, 2.6% less activity that we have?
Chronic right?
This is overall. Of course, acute is much higher and chronic is much lesser because we have lesser business over there. We -- as I mentioned that we are targeting a strong double-digit growth as far as chronic business is concerned. So that will even bump up our overall productivity. And -- because the increase in productivity would be much higher than chronic than as compared to acute, which is already at a higher productivity of close to around INR 7 lakhs.
And any numbers that you are trying to target for the year or the next year?
As I mentioned, you can see a strong double-digit growth on that. So idea that is what we are targeting.
And sir, you mentioned -- Sandeep sir mentioned about being slightly more open to M&A opportunities. So which areas will be looking at? And what is the size that we'll be looking at? I mean what -- would we be willing on to take some debt for the same? Or reduce some of the cash that we have?
I think we have enough cash. We're not going to take debt and do a $1 billion acquisition and even close to that. So I think chronic segment is what we are looking at. But -- we'll come back more granularly as we kind of evaluate.
But chronic could be a good segment. OTC consumer could be a segment, too, but I think chronic would be the most -- highest priority.
We'll take the next question from the line of Gagan Thareja from ASK Investment Managers.
Yes. Based on your guidance for this year, 16.5% possibility and second half, if you back it out, it comes to around 15-odd percent if I have my calculation correct ballpark? And last year, second half was around 15%, 15.5%. I'm wondering if you have the benefit of the cost-cutting programs and some tailwinds on raw materials, shouldn't it be reasonable to presume the second half will also be better Y-o-Y in margin, whereas the guidance is suggesting it won't reach?
Again, it comes back to Vikas' answer also. See, the mix was good this quarter. If it remains we could beat that. But in all reasonableness, we know that this year will be very sluggish. So -- and quarter 4 always is weak. So quarter 4 and a sluggish year could be weaker. So I would not anticipate like a huge positive thing. And your calculation is very right. I think we'll be around close to that.
Okay. But don't you think that the [indiscernible] is the cost that you've controlled [indiscernible] in principle, even with the same sort of sales.
Last year quarter 3, I think EBITDA was 19.7%, if I'm right you mentioned some other number. Quarter 4 was 12.2%.
Yes. I'm saying last second half at 15.5%.
Yes. So we'll be close to that.
As there are no further questions, I would now like to hand the conference over to the management for closing comments.
Thank you, everyone, for attending the call. If any of your queries are unanswered, please feel free to get in touch with me. Wishing you all a very happy Diwali. See you next year.
Thank you. On behalf of Motilal Oswal Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.