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Alkem Laboratories Ltd
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Ladies and gentlemen, good day, and welcome to Q4 FY '22 Earnings Conference Call of Alkem Laboratories, hosted by Motilal Oswal Financial Services. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Tushar Manudhane from Motilal Oswal Financial Services. Thank you, and over to you, sir.
[Audio Gap] 4Q FY '22 Earnings Call of Alkem Laboratories. From the management side, we have Mr. Sandeep Singh, Managing Director; Mr. Rajesh Dubey, Chief Financial Officer; Mr. Amit Ghare, President, International Business; Mr. Yogesh Kaushal, President, Chronic Division; and Gagan Borana from Investor Relations.
Over to you, Gagan, for opening remarks.
Thank you, Tushar. Good evening, everyone, and thank you for joining us today for our Q4 FY '12 and full year EPRA earnings call. Earlier during the day, we have released our financial results and investor presentation and the same are also posted on our website. Hopefully, 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 this call, I would 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 as reviewed in conjunction with the risks 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 would like to hand over the call to Mr. Sandeep Singh to present the key highlights of the quarter and the year gone by and strategy going forward. Over to you, sir.
Thank you, Gagan. Good afternoon, everyone. Starting with the financial performance for the quarter, revenues from operation grew by 13.3% year-on-year, driven by healthy performance in India business, which registered a year-on-year growth of 16.7%. U.S. business was almost flat year-on-year as we try to offset the significant pricing pressure through our new product launches. Other international business did well during the quarter with year-on-year growth of 35.3% with the key markets leading the growth. EBITDA margin for the quarter was 13.6%, impacted by higher raw material prices, increase in freight cost and initial manpower as we expand in new therapies.
During the quarter, we had an exceptional item of INR 50 crore debit on account of fair value of investment and income tax of earlier years, INR 91 crores due to disallowance of marketing expenses in light of the recent legal pronouncement, which suppressed our net profit for the quarter. Talking about the India business, we registered a secondary sales growth of about 15% year-on-year during the quarter and about 28% for the full year. This was about 1.5x the IPM growth. This performance was mainly driven by strong volume growth, partially helped by COVID-19 tailwinds in acute therapy areas of anti-infectives, vitamins, minerals, nutrients, pain management and gastrointestinal.
Most of our mega brands continue to outperform in their respective markets, thereby maintaining their lead positions. Our chronic portfolio also delivered a market-beating performance for the financial year, growing at almost 2x the market growth rate. Our trade generics business, despite the high pace of last year, posted a strong performance. Our recently launched Pulmocare division catering to the Respiratory segment saw an encouraging start with growth rates higher than the therapy growth rate.
Moving on to international business, our U.S. business ended the financial year with sales of $318 million, which was down 4% year-on-year. While we have a good number of new product launches during the year, some of which had limited competition, but significant pricing pressure completely offset the impact of new product launches. During the year, we filed 4 ANDAs with the U.S. FDA and received 21 approvals. We now have over 160 ANDAs filed with the U.S. FDA, with nearly half of them yet to be commercialized.
Apart from the U.S., our other international markets delivered a robust year-on-year growth of 35% during the year with healthy performance in the markets of Australia and Chile. Talking about Enzene, our biotech subsidiary, it has been a good year for them with 3 product launches in India and onboarding of multiple companies for the CDMO services. Also during the year, Enzene signed several out-licensing agreements with some of the leading international companies to develop and commercialize products in key markets across the globe. The company has also started global clinical trials on selected products to launch them in regulated markets starting to 2025. In terms of regulatory inspections, all our manufacturing facilities supplying to the U.S. are having an EIR as on date. Our manufacturing facility at Indore is awaiting preapproval inspection by U.S. FDA.
With this, I would like to open the floor for Q&A. Thank you.
[Operator Instructions] The first question is from Saion Mukherjee with Nomura.
Sir, one question on the cost pressure that you have mentioned. So raw material as a percentage of sales increased materially, you had talked about it earlier also. It's on a higher side. So how should we think about freight and raw material costs going into the next couple of quarters? And what is driving them? And any trend that you would like to highlight at this point? Are things coming down or still are going up from the current levels?
Yes, Saion, Rajesh Dubey here. In fact, in our last earnings call, also we discussed on this. Definitely, enhanced cost of procurement whatever we have done. As I said in my last call also, partially it was consumed earlier in quarter 3, but mainly consumption and sale of those consumed item, it has happened not completely for this quarter also, but definitely for next quarter it is going to be. So one good thing now procure -- with material prices, it has started showing a softening trend and that good thing happening. But whatever material we have procured, ultimately we are going to consume it. So -- and freight also, as you rightly said, both domestically as well as for our international trade we can witness sharp increases, and particularly in rates for our international trade. So both this is going to have impact going forward. And as we indicated last time also, we have taken so many measures to address this issue because you rightly said, it's a substantial increase. But we feel somewhere around 150 basis points to 170 basis points. It will be a having impact on our gross margin.
Sir, just to be clear, you already have an impact in Q4. On top of it you think there can be 150, 170 basis points more you think, which we'll see in the subsequent quarters in Q1 and Q2?
Yes, exactly, Saion. I wanted to communicate that only. In fact, whatever procurement it has happened, partially we consumed in quarter 4. And -- but major portion, we are going to consume in quarter 1 of this year. It may be an initial period of quarter 2 also. So, in fact if you recollect October onward material prices, it started showing upward indication, in November and December it was on its peak and then the scarcity of our availability was also concern. So we accumulated some higher inventory and most of the pharma companies they did. So whatever consume this high-cost material consumed because whatever savings happening it will be having an impact on gross margin. See, material prices, it has not come to its normal. It has started showing indication coming down.
So sorry. So if -- I can say [indiscernible] this 150 basis point is the impact compared to last year in quarter 1 and going forward in the year.
So this is quarter-on-quarter -- sorry, year-on-year is what you're indicating compared to Q1 of last year?
Yes, Saion, yes. Yes.
Okay, okay. Understood. And this other question on the international business, especially non-U.S., we have seen some good traction. If you can throw some light, you mentioned Australia, Chile doing well. So what is exactly happening? Why we are seeing this step jump this year? And how should we think about this business going forward?
Yes. Saion, Amit here. Yes, we talked about it in the last couple of calls. And in fact, you were one of the -- ones who said that we've seen our business increase and also regularity. So it's not really a change in strategy. It is very much the same market that we've been doing for a few years now. So we've not really added anything material. I guess the performance -- higher performance is directly proportional to some new launches that we did in these markets. And the price erosion in these markets has not been as high as has been in the U.S. There is deflation, of course, in every market, but not at the same levels. So those 2 combined things now that we've also generated from scale has resulted into this kind of a growth. We'll continue looking at these markets. We'll continue focusing on them for future, and we are obviously hoping that we'll continue doing this performance.
So you expect double-digit kind of growth to sustain in these markets?
That's correct.
The next question is from Chirag Dagli.
Sir, how many products are we selling currently in the U.S. market? And how many of these are yet to reach peak potential?
We currently send about 85 ANDAs. The only ones where -- which haven't reached its full potential will probably be about 15 -- 15. And the reason for that is some of those we may not be competitive, so we've not reached the levels that we had expected to reach and some of them may be recent launches. So it takes time, a couple of quarters at least if not more before we reach the desired market share levels.
Understood, sir. And sir, given that we had very poor profitability in the U.S. at a PBT level before FY '22 as well. In FY '22, would it be fair to say that at the PBT level, U.S. is not contributing probably at losses at a PBT level?
So we don't split by our profits by market. So I'm not sure, Chirag, where you picked up your question. But all I can tell you is several quarters back we had clearly guided that we are well beyond the breakeven point for U.S., and we are certainly -- we've not slipped back into it.
At the PBT level, sir?
At the PBT level, that's correct.
Understood. So we are still profitable in the U.S. at the PBT.
Very much, very much. U.S. contributes to more than 25% of our revenues. We cannot have -- afford a market with losses at that level.
Understood, sir., understood. And just one more question, if I can. Can you split the India business into acute branded chronic and trade generics for the full year?
So if you split the India bucket, the first 22% is a generic, remaining 78% -- 85% is acute and 15% is chronic.
Next question is from Prakash Agarwal with Axis Capital.
My question is on the India business. So I don't know if you already shared, but given that we are heading on a strong base of last year, are we giving any guidance on the India growth so that we have clarity?
Yes, Prakash. So I think we maintained what we always said. I think we will have double-digit growth this year in spite of coming on a strong base. And if you want to throw some -- I mean, you want me to like specific...
Yes, sir. So the growth, you had a very high growth especially in the first half due to the second wave, so acute was very heavy and we have acute heavy portfolio. How do we plan to have double-digit growth? I know if you could split volume pricing, I understand there will be some pricing gain also. But [indiscernible] you want to highlight?
So before the split of how the growth would come, I'd just like to add that we have added 500 people in quarter 4 of last year to rebalance our portfolio and go for growth. Apart from that, the price increase would be higher this year compared to the previous year, 7% -- 6% to 7% will be price rise, new introduction would be around 3% and volume growth is between 3% to 4% to 5%. That's how the spread would be. So we feel confident that we will cross double-digit growth this year as well.
Okay. So one is, I understand additional people. And secondly, so which will also lead to some volume growth. And the second lever is the price.
Price is a big lever this year, yes, around 7%.
Yes. Got it. And with 12%, 13% India growth and you are guiding for a margin cut due to the cost increase. But wouldn't it be operating leverage should play out because India being more profitable, etc., it should flow down to EBITDA also.
So, I think, see, you have to understand that our R&D price have really gone up, Prakash. And we are kind of investing in biosimilars and things like that. So operate come in, but did not offset all the price increases which we have had this year.
Understood. And the R&D run rate for the quarter is exceptionally high? Is this the new quarter base given that you are going into the biosimilar, etc., or how should we think about a full year run rate?
Whatever guidance we have given, we stick to that from this quarter, I don't think so it's exceptionally high. We have hit around 6.4%, okay. No. So we stick to around 5.5% to between 6% next year.
Okay. And last one is on the cash. So we are continuing to see good cash generation. In the past we have been very conservative or conscious of any acquisitions. What is the thought process now on that?
So we continue to see the same set, DNA has not changed. We are conservative. We'll do what we know to do best. And so no large acquisition plans, Prakash, bhai.
Next question comes from the line of Rashmi Sancheti with Dolat Capital.
Sir, again, on the gross margin front, can you break it up, like how much impact was just from the high input cost and also from the U.S. price erosion?
Yes. So if we talk on -- I think, Rashmi, you are talking for '21, '22. So in '21, '22 right now, in quarter 4 particularly. So NRV, it has impacted by 1.6%, 1.7% and equivalent was the impact of cost also, enhanced material costs.
So you're saying 1.6% to 1.7% from the higher raw mat cost and equivalent to that, at least around 1.7% from the price erosion?
Yes.
Okay. And what is the outlook on the U.S. price duration at the company level? Are we seeing any normalization? I mean for full year, how much was it and how much are you expecting in FY '23?
Full year last year, price erosion in U.S. for us, for our portfolio was lower double digits, about 11% to 12%. We're not expecting it to be at that level. We are expecting it to be in single digits but higher single digits.
Okay. And sir, on R&D, like you mentioned that we would be spending 5.5% to 6%. Can you let us know like how much would be catering to the U.S.? And how much it would be catering to the international markets or Indian market?
I think 90% is for the U.S., Ma'am.
90% is for the U.S. only, okay. And that would be more into biosimilars and on?
No, no, no. I mean, not more into biosimilars. biosimilars have started like this year and going forward. But no, large part is not into biosimilar. biosimilars is certainly a part of it.
Okay. And sir, my last question, again on India. Sir, in Trade Generics segment, which therapies are you focusing? Is it similar to branded generic space, the products are similar or it's a complete different product set that we are selling it in the trade generic segment.
So trade generics, we are not focusing on any therapy just by real strength and Alkem brand name, we get a large push in acute and semi-chronic and things like that. So we're not pushing in therapy areas, ma'am, because it's a different ball game.
Okay, you mean to say that we are more, again, acute focus and some part comes from the sub-chronic. That is what I wanted to know.
Next question comes from the line of Damayanti Kerai with HSBC Securities and Capital Markets India Private Limited.
My first question is again on margins. So you mentioned we obviously are seeing impact of higher input costs on gross margins and all. So going ahead, how should we look at margin at the EBITDA level for FY '23?
Whatever we are going to have in gross margin level is going to pass on to EBITDA also. We estimate somewhere between 150, 175 basis points for yearly basis, that's our estimate. And it's going to give impact in our revenue.
Okay. So around 150, 170 basis points hit on EBITDA level also. But on a steady state, what margin we should be looking at around 21%, 22%.
EBITDA margin you are referring?
Yes. Yes. So I'm saying this year obviously we'll have some impact of this higher input costs. But in a steady level, what should be the EBITDA margin we should consider?
This time, we have 19.3%. So I think 150 basis points here. So I think we'll be somewhere close to 18% kind of. Thereafter, we look to improve for FY '24 onwards. So hopefully, the environment -- inflationary environment needs to go off a little bit.
Okay, sure. My next question is on India business. So you said you added around 500 people for the new division. So can you update us on the current MR headcount? And what is the productivity level across acute and chronic segments?
Yes. So our total MR count is [ 10,000 ].
Sorry, sir how much?
10,000. And the split is 17% in chronic and rest in acute.
Okay. And how about the productivity levels in terms of PCPM?
So broadly I would say, acute is around 6 lakhs, chronic is 3 lakhs to 3.25 lakhs.
Okay. And my last question will be your thoughts on biosimilar business. How do you see it scaling over the next 3 to 5 years? And what kind of further investment you are looking here?
We have -- this is the first [indiscernible]. So I think next year, w could hit a revenue of, say, around INR 250 crores. But I think those will come when we launched it in international regulated markets like U.S. and Europe, and that is still like [indiscernible]. We have invested already, say, INR 200 crores. And every year, we might invest another say, INR 100 crore R&D and things like that.
Okay. So around INR 100 crores kind of investment every year you are emphasizing at this point of time. Okay. Thank you. I'll get back in the queue.
The next question is from the line of Nithya Balasubramanian with Bernstein.
So on trade generics, I remember last year alone we have seen several companies join this race, some of the other large -- your peers and other large pharma companies. So given that there is now increased competition, how do you see this impacting your market share and rank? And a related question around, is this likely to open up new markets? Or is it more likely to cannibalize existing branded generics?
So see, competitives will enter. But as I remember, a couple of meetings before our MD answered this very clear, it's not that simple. Generic also has a very strong connect and relationship building with supply chain network, right, from your production unit till your depot and distribution network, stock as to all that takes time. So I think that over a period of last decade or so, Alkem has built a very strong equity on that front. So while competitors will come and they will find some way to get some share, but Alkem has a very strong presence there. So what's the next question?
Second one was how do see more players enter. Do you see the market itself expanding or cannibalizing existing branded generic market?
This is not less likely because India still has a reach of medicine is still not beyond 40% to 45% population. So any and every one has a space to create their own market. So it won't disturb the current flow of Alkem or anyone, everyone can make a space here.
Got it. My next one is actually on the U.S. So if you see -- if this high single-digit kind of price erosion sustains and based on your outlook for how much new launches could add, what sort of growth are you envisaging maybe in the next 2, 3 years?
For the immediate year, we had talked about a double-digit growth, a lower double-digit growth. Sitting only in the second month of the fiscal year, we are very much sticking to that. It's a challenge, but we certainly are -- that's the kind of growth that we are estimating. Going forward, obviously, we'll continue to look to remain on that growth trajectory. Our base will increase, obviously, so that will bring its own set of challenges, but that's what we are looking at. So around 10% to 12% is what we are looking at.
Next question is from the line of Kunal Randeria with Edelweiss.
Sandeep, can you maybe share with us what are some of the volume growth levers in the India market because on the outside it seems that out of your 4 biggest territories, the big ones gastro and vitamins, there could be some volume pressure this year, because obviously you have a phenomenal FY '22. So I'm just wondering which other therapies or brands in your view will put up the slack?
Yes. So I mean I would add anti-infects to that as well because that also had a high base last year. But we will have -- the volume growth is around 3% to 4% or 5% at best. So it's not unreachable because we have added people in the last few years, and we will be getting market share, which we have always got. So even if you look at our market share of last year, there has been a 0.3% increase in the market share if you look at us as vis-a-vis IPM. So I think it's just good, aggressive manpower addition we have done. We have entered the respiratory therapy, which is a new area. There itself we see some growth. And so the new areas for us are firing up. The chronic segment is not as big as acute, but that's also not small now. So there will continue to grow by good double-digit volume. So therefore we feel confident that those volume levers will work.
Sure. My second question is on the U.S. business. So while I understand you had double-digit price erosion in the U.S. this year. You also had a couple of interesting launches [indiscernible] So I just want to understand how the U.S. margins have moved in FY '22? And how do you see the margins moving in FY '23, maybe qualitatively if you can just give some comments?
Kunal, we don't disclose our business segment margins. Unfortunately, I won't be able to answer that question. But we did answer several quarters back, several years back, actually, and I answered earlier today that we are well beyond the breakeven point many years ago, and we have no intention of going into it.
Sure. But qualitatively, whether you expect the margins to be [indiscernible] or you can go up or maybe even go down before it can go up?
Right. So year-on-year our margins have remained fairly steady is what I would say. Our base business has obviously has seen a large price erosion last year, but some new launches exactly the ones that you mentioned and even otherwise, has certainly helped us. Our new business contribution last year was one of the highest in all the fiscal because of which we could actually sustain a small de-growth instead of a larger de-growth in the business. The base business certainly de-grew by a lot because of price erosion and in some cases even lower market share. So that certainly helped. And going forward, we are hopeful with more contribution coming from new launches. New launches traditionally come at a better margin profile. So that certainly will help us to improve our margins.
And if I can just squeeze in one more. So I want to understand that below the COGS line you may not have a lot of room this year because of increase in sale cost and all. But in general, maybe over a 2- or 3-year period, what kind of cost optimization can we expect?
So I think our margin, it was -- and it is in the range of -- somewhere between 60% to 62% kind. This year, because of -- so below gross margin I think, more or less, whatever trend we had, we are going to have. Operating leverage is going to flow. But there are a few things, having inflation impact also, and that is bound to happen. For example, distribution cost, freight. But we do have some levers and cost optimization, cost optimization, all across wherever we see opportunity we are working on that, including manufacturing and others, including optimization at our R&D facilities, distribution, all of those. So we have some levers and we have identified those. We'll be working towards it. Otherwise, it will be very difficult to have objective of adding to EBITDA margin to 50 to 100 basis points, but that's a tough task we have taken and we'll be working towards it.
Next question is from the line of Yash Tanna with ithought.
Am I audible?
Yes, you are.
So my first question is I wanted to understand more on Alkem long- to medium-term strategy on the chronic side of the business. So we've outperformed the acute side, we have also outperformed on the chronic side, but I wanted to understand more on how do we see a chronic franchise 3 to 5 years down the line since intensity, competitive intensity might be a little higher on this side. So how are we planning to execute consistently on the product side?
I think 2, 3 areas which are clearly defined by chronic. One is our productivity is still average. So compared to within company, we are at 3 lakhs. So we should be looking at how do we complete within the organization and raise the productivity because our prescriber base is still around at average level. So we even I double the subscriber base in the next 3 to 4 years, 2 to 3 years, I should be able to increase our productivity. So first is productivity. Second, of course, is the main therapies, which dominate chronic is cardiac and diabetes. So on a Diabetes front, we have -- I'm sorry, I slightly sore throat. So on the diabetic front, we have a very swift pipeline of new products, and these can be blockbusters, live we have launched combination for [indiscernible] So all these are molecules which are worth around INR 300 cores to INR 500 crores in 2 to 3 years' time. So right now we should be around close to INR 1,000 crores in next year and we look at that around 4x can we double the base and reach around INR 2,000 crores.
So you said INR 1,000 or INR 2,000 crores in 3 to 4 years, right? 4 years' time, right.
By 4 years' time.
Yes. Okay. Got it. That was helpful. And second was actually again on the margin. So we -- I mean, we -- before just the understanding was that we would improve the margin by 50 to 100 basis points year-over-year. But now FY '23 was guided for 18%. So post that, should we expect 100 basis points consistent improvement in the margin?
We said that, yes. So, we chose the higher end, but we into 200.
Okay, So 3 to 100 decline this year, I mean, the coming year and then we would be going up.
Hopefully, yes.
Okay. Okay. That's helpful. And one last question, if I may. So I just wanted to understand from a medium to long-term time frame, capital allocation priorities, like the geographies or where are we planning to invest a lot of money.
I think so in the medium term -- short and medium term, nothing is changing. So the geographies are going to be India and U.S. and some key other ROW markets. And where you want to allocate, I think biosimilars is a new frontier, nothing other than that right now.
Okay. Got it. So no major CapEx lined up.
No, no.
The next question is from the line of Bino Pathiparampil with InCred Capital.
Hello, sorry. Most of my questions have been answered, thanks. Just a clarification on tax rate, if you could give some guidance for FY '22 and if not exact at least some directional guidance over next 3 to 5 years how the tax rate is likely to move?
For the next 2 years, as per our estimate, tax is going to be somewhere between 11 to 14 kind of percent. Going forward, I think since our plants, they will come out of ADI. And then this I'm talking for '26, '27 onwards. At that time, we'll give a fresh guidance. For next 2 years will be between 11% to 13% or 14% kind of.
Okay. So the facilities are broadly coming out of the expansion around '26, '27. Thank you.
Sorry, I did not get you.
If I heard correctly, the facilities are coming out of the expansion in the '26, '27 year.
Yes, yes. You're right.
Next question is from the line of Saion Mukherjee with Nomura.
Sir, one question on biosimilars. You mentioned INR 100 crore investment every year. So this is all operating expenses I would assume. So how much -- so Enzene currently is contributing negatively to your EBITDA by around INR 100 crores or there are...
Yes, around about that much this year last year, yes.
Okay. And so what are the key milestones on we need to sort of watch out for in terms of clinical studies, etc. And this number would remain at INR 100 crores over the next few years you think? Or it can go up also?
No, I think it can go up. This is just for the next, let's say, a couple of years. And so yes, if ambition level goes up and we'll obviously update you all, talk to you all and this number would be going up. So sorry, what was the question? -- sorry, your first question.
So what are the key milestone?
The milestone is that launching in India. So we have launched 3 products, and we will be launching a few more. We have already out licensed some products to European players who have given as good upfront payment. So I think that's a milestone. These milestones already happened. Now going forward, I think what we need to track is how does the clinical trials progresses in the U.S., which is already initiated for a map for the U.S. market. So there we need to be on time and file it on time and file it on time.
So this is for the U.S. filing. So when -- have you disclosed the product, if you can give some size and like when do you expect the trials to be completed and filing to happen?
Yes, I think filing would happen around '24 end, 2022 end, filing would happen around that time. Yes, and the molecule, I think we can let you with denosumab.
Okay. And the other question I had on [indiscernible].So I think you mentioned about 500 people added last quarter. If I remember historically, you have added like 1,200 every year. So this is very high. So are we sort of stepping up MR addition going forward? And if that is the case, is there any strategic rationale for doing that?
No. So we are not stepping up. I think we have already added. Hopefully, there's always [indiscernible]. So I think, see, it's the portfolio alignment and how do you make large brands focus and grow and also give space to medium-sized brands to grow. So that's the reason we have done this hire.
Okay. So I mean your addition would remain on an average, 1,200.
No, no, no. We cannot do it like perpetually. We'll reach 100,000. So of course, we can't do that. But we're also conscious sign of the fact that we do have a lot of people. But at the same time, we had to do it because it was important. So it's very strategic. You know the chronic portfolio is still around, let's say 1/3 of acute. So we don't see it. I think like that much even close to that number for the next few years every year. I think we are almost saturated. But yes, there are strategic calls, we might add 200, 300 people in the next few years.
Okay. Okay. Understood. And just one question on acquisitions in India. You have restrained from doing deals in India. But given the kind of base you have, don't you think Alkem can add value by acquiring brands even if it is somewhat expensive.
No. Great. So Saion, you're right, the issue is, see, first off, they are expensive and we are not of the minds that we'll overpay. Second, a lot of times companies are available for acquisition, not just brands, and that leads to some other complications of sale force and different cultures and things like that. So very rarely is an opportunity where you can acquire only brands. And then however that happens, some -- most of the time we see that is expensive. So I do see a point, Saion, but I'm not very sure whether it will work out in our favor in terms of where we already have 9,000 people, 10,000 medical reps. If you're going to acquire businesses on the whole, it comes with it own sets of medical reps and different cultures and all. It become a challenge, Saion. So we'll be cautious. And I'm not sure whether we'll do large deals over it.
The next question comes from the line of Nimish Mehta with Research Delta Advisor.
Yes, thanks for the opportunity. My question is regarding the gross margin and a little confused. When I look at the full year gross margin that we discussed so far, more or less we are in line with what we had last year. And last year also you mentioned about the input cost prices are going up and supply. So what exactly -- I mean, how exactly is the impact coming on the gross margin. I'm still not able to understand, I mean the gross margin remains [indiscernible]
Yes. So Nimish, you are very right. In fact, in this year we have a positive of 20 basis points in gross margin. So it's a plus. So let me just give you component and this supply deflation mainly in U.S. it has impacted. On overall basis, on annual basis, we don't have any significant contribution on account of increase in material costs. And when I'm talking raw material cost or tech material. Yes, in quarter 4, if you go, you can see it because whatever procurement we have in the month of November and December, we consumed partially in quarter 4, and we are going to consume going forward in quarter 1 or quarter 2 going forward. So it is going to have impact in '22, '23. But as far as '22 concerned, you are very right, the input cost increase is not having any significant impact. And then by way of a better product mix and better gross margin. Within our gross margin, if fact there is addition of 20 basis points in that.
Even if you compare the fourth quarter and I'm comparing Y-o-Y, I think that should be the right way. You can correct me if I'm wrong. I don't see in fact that is an increase in the gross margin. So what I'm trying to see is that every Q4 we have a lower gross margin. So what has changed even in this quarter or we need to compare to 2Q.
So Nimish, if you remember, Q4 of last year there was an inventory write-off, which has pulled down the gross margin. If you adjust for that, there is a Y-o-Y dip in the gross margin Y-o-Y. Even if that compared or full year basis also there is small dip, okay? What has helped us this year is the product business mix has improved. So last year FY '21, India around percentage of or 65% has gone up to 70%. So helped by mix and last year there was this inventory write-off. So we adjust both then there is a marginal dip in gross margin because of the inventor as well as the raw material cost. And when you say 100 to 150 basis point impact, that is on Y-o-Y level FY '23, compared to FY '22. So it ended the year at [indiscernible] we're seeing about 100 to 150 basis point impact on that number on a full year basis. There's a seasonality across the quarter and the seasonality is going to remain and after normalizing the seasonality on Y-o-Y basis it is going to be 150 basis points.
Okay. On the 150 basis points that we are talking about does not consider into -- I mean, it does not take into consideration the fact that we might have better product mix and better -- we also are likely to see good amount of price increase in the domestic market and all of those things.
So what Dubey sir was saying was our normal gross margin is around 61%, 62%, okay? So it will come down to close to 60%. So 59, 60 is where we may end in FY '23 because of the higher raw material costs. And say FY '24 onwards, this should go back to 60, 61 levels again.
Okay. Got it. And lastly, once again on the same thing. Does it also include some -- I mean, last year I think you mentioned that you might be launching a few low competition products in U.S. So are we likely to do that? And this margin guidance is net of that as well?
We hope to launch product with less competition. Ultimately, competition dictates whatever comes through.
Okay. And the margin is net of all those factors, right? Like...
Business as usual.
The next question comes from the line of Nikhil Mathur with HDFC MF.
I just wanted one clarification. Did I hear it right that your U.S. growth guidance for FY '23 is 10% to 12%?
Yes, that's right, revenue.
Okay. So [indiscernible] has done $320 million in FY '22 if I take into account high [indiscernible] the net addition works out to be somewhere around 65% or $55 million to arrive at a 10% growth. So I'm just trying to understand, I mean there's a bit of which kind of save that this seems a bit stretched this particular guidance. So can you share some key questions why the update guidance into?
Sorry, what is the last part? I missed that.
So this guidance [indiscernible] I mean, 10% growth on erosion of 8%, 9%. Are there any specific features or why what's update on the U.S. outlook for FY '22.
The entire FY '22 was depressed compared to FY '21. So as you can see, we've degrown by 5% in the current year. So now if I'm basically guiding 10% to 12% increase over FY '22, in fact we are only guiding for a 7% increase over FY '21. So we are confident because, number one, as I said, the price deflation is reduced compared to what we have seen in FY '20 as we sit right now. And then number 2, of course, we will always hope to do better with our new launches. And as I mentioned earlier, in FY '22, we actually did very well compared with our new launches, compared to our own performance in the previous fiscal before FY '22. We were not able to demonstrate it because of a higher price erosion during the last year.
Okay. And then to achieve this, only a number, roughly $80 million, $90 million on the [indiscernible] first quarter itself? Or do you think that it's going to be -- second half is going to be much better than what we delivered in first half of FY '23.
Yes. So no, look, we obviously expect our performance to grow quarter-on-quarter. So first quarter if we are comparing year-on-year compared to quarter 1, yes, I would expect a 10% to 12% increase. And we need to obviously see that coming through before we update our guidance or we update our numbers.
Okay. Okay. Sure. And one slightly larger picture question on India. I mean, it's more than 2 years now since time. So any thoughts you can share on your expectations on the acute and chronic growth business what it was prior to COVID? And developments in trade generics and sales force efficiencies. If you can share some of your updated thoughts on these 4 segments and key variables for the domestic market versus pre-COVID what your expectations would be now?
Yes. So we think this year the things would almost be normal to pre-COVID code level. So growth in acute will sustain. That's what we just said earlier that this year the growth of acute maybe the range of around 10% to 11% and chronic, those markets will grow at around 10% to 11%, and we should aim for double the growth of market in chronic. So around, roughly we can say that 10% to 11% growth in acute and around 20-odd percent growth in chronic. So averaging out around 3% for the domestic business. And trade generic, traditionally we have seen good growth. So we hope they will continue similar trends in the coming year as well.
So I think this helps. But if I may just replace my question. Has there been any structural change in how you perceive growth for different segments and also how you approach doctors. Things might be a bit more clear now since the last wave had seen most of an effect -- so I'm looking for a bit more structural thought process on how you've been able to tackle over a 3- to 5-year period.
So see, you just heard were saying that we have already added a lot of people, around 1,000 people every year last 2 years. So we don't expect major structural change in our business approach Yes. So pre-COVID, so one is structural chain in the organization. So our focus areas will remain same, we are not going to value from them. And as far as meeting doctor is concerned, we expect that -- we expect an almost now the meeting customers is to the pre-COVID levels. So there's no major in on that. I assume that you're asking about utilization of those digital and all. So, yes, there will be slight change towards -- to reach market through digital media and that can be a little factor. But normally this will go to pre-COVID levels with some additional digital efforts in our business.
The next question comes from the line of Saion Mukherjee with Nomura.
Just one clarification, Amit, in response to Nikhil question, which you mentioned a growth of 10% in quarter 1. That would put our U.S. revenues at around $90 million, which is almost $70 million higher than what we are in fourth quarter.
That was compared to FY '22. It was not compared to FY '21. FY '21 was a completely different quarter 1. So that's not in relation with that year.
No, I mean, in the first quarter, this quarter FY '23, I thought you mentioned you will deliver a 10% growth on first quarter FY '22, which was higher, right? It was around $80-odd million. So you should be closer to $90 million in this quarter if you have to grow 10% on Q1 of FY '22. That would mean a Q-o-Q growth of almost $17 million, which is a big number, $73 million. So I mean at the mid of this quarter are you having that visibility of sort of getting close to $90 million in Q1 FY '23.
Saion, rather than getting into absolute numbers, I think Nikhil's question was essentially trying to ask me is there something during the year that we are depending upon for delivering this growth. That's how I perceived and understood it. And what I wanted to answer there was and what I answered there was that we are not dependent on one event or one product or something, which will deliver this growth for us. So we need to deliver our growth, whatever that we've talked about, fairly evenly during the year. And therefore what I answered was that even in quarter 1 we are expecting to deliver some growth over last year's numbers, FY '22 numbers. So that's what -- please read it in relation with that. Specific for each quarter is there are ups and downs, some of it will get connected. For example, the first quarter in FY '21, if you remember, was a very high quarter. So obviously that is not a correct number or a correct way to look at.
As there are no further questions, I would like to hand the conference over to Mr. Gagan for closing comments.
Thank you, everyone, for attending this call. If any of your queries have remained unanswered, please feel free to get in touch with me. Thank you, once again.
On behalf of Motilal Oswal Financial Services, that concludes the conference. Thank you for joining us, and you may now disconnect your lines.