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Alembic Pharmaceuticals Ltd
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[Technical Difficulty] Ladies and gentlemen, good day, and welcome to Alembic Pharmaceuticals Limited Discussion on company's Q1 Unaudited Financial Results Conference Call. We have with us today, Mr. Pranav Amin, Managing Director; Mr. Shaunak Amin, Managing Director; Mr. R.K. Baheti, Director, Finance and CFO; Mr. Mitanshu Shah, Head Finance; Mr. Jesal Shah, Head Strategy; and Mr. Ajay Kumar Desai, Senior VP Finance. As a reminder, all participant lines will be in the listen-only more than there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]. Please note that this conference is being recorded. I would now like to hand the conference over to Mr. R.K. Baheti. Thank you, and over to you, sir.
Thank you. Good evening, everyone. Thank you all for joining the first quarter results conference call. I'm sure you have got to their views by now. Let me briefly take you through the financial numbers. During the quarter, our total revenue grew 18% to INR 1,486 crores, EBITDA is INR 210 crores, which is 14.1% of sales and grew by 67% before considering nonleaking items in corresponding quarters. Net profit is INR 121 crores. EPS for the quarter is INR 6.14 per share versus INR 1.84 per share before nonrecurring items of previous quarter -- previous corresponding quarter. Interestingly, this year, first quarter EBITDA and net profit are after charging all expenditure of new plants that is F2, F3 and F4. Till December 2022 or so, we were capitalizing them as capture widely. The borrowings at the gross level at consolidated level is to be INR 600 versus INR 630 crores in March 2023. And company has about INR 90 crores in cash on hand. So March ‘23, the number of INR 75 crores. So net debt equity is now at 0.1%. It will be interesting on for all of us to hear from Shaunak and Pranav their respective business performance, I'm handing it over to Shaunak for India-branded business. Shaunak?
Okay, I'm – my network is not so stable. So in case it tops out just discontinue right. So from the India business, we grew at 9% to INR 524 crores for the quarter. For Q1, if I look at parent external numbers, industry grew by 9% as per as well as our external growth at 11% or specialty market… [Technical Difficulty]
Mr. Amin, your line is not clearly audible. [indiscernible] of the management, I would request you want to please stay connected while I try and reconnect Mr. Amin on a different network. Just give a minute. Requesting all participants to please stay connected while we have Mr. Shaunak Amin reconnected requesting you all please stay on the line. We have Mr. Shaunak Amin reconnected. Over to you, sir.
Yes. Okay. For acute industry expect growth of 10%, whereas the expected growth of 15%, and to effective industrial 10% growth have been recorded a 19% growth. In copper coal, Alembic's growth is in line with market growth of 10% and Animal Health care continues to perform at outperformance of 11% in Q1. For the quarter, the business did see a bit of softness in the back end of the quarter, partly because the extended summer months in large parts of the country. And going forward, hopefully, we just one with the onset of us monsoon, we should see a significant pickup in momentum going forward. I'll pass it on to Pranav Amin for international business.
Thank you. The U.S. business grew 6% in rupee terms on a year-on-year basis. Our focus is on launching new products in this year and improving efficiencies and execution in the midterm. Importantly also, the ex-U.S. formulation as well as the API business have done very well, and we are confident both these verticals performing in the coming quarters as well. The R&D expense for us was INR 119 crores, which is approximately 8% of sales in the quarter. As I mentioned in the past, we have been working on optimizing the R&D costs and the improvements are on track. If I ANDA during the quarter and cumulative ANDA filing stay at 250. We received 5 approvals in the quarter and cumulate have 184 ANDA approvals. We launched 6 products in the quarter and plan to launch over 20 products during the rest of the year. The USFDA has inspected our new oral solid dosage facility at 4 in December. We have now received EIR for the facility and have 2 product approvals from this facility. With this, all our manufacturing facilities have the respective EIRs in place. In terms of revenue, the U.S. generics was flat at INR 390 crores, whereas the ex-U.S. generates grew 46% to INR 266 crores, and the API business grew by 31% to INR 205 crores. I would like to open the floor for question and answers. Thank you.
Thank you very much. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. The first question is from the line of AM Lodha from Sanmati, please go ahead.
Hello, am I audible, sir? Mr. Baheti?
Yes, please go ahead.
Sir, I have got 2 questions, sir. Number one, research and development expected, which has moderated in this current quarter. Can you update, sir, how much amount we expected to incur during the current year FY '24?
So in the past 2 calls, I've said that this year, our target is to get somewhere around INR 500 crores of R&D. And I think we'll be around that number, maybe even lower.
Okay, sir. Then another one year U.S. subsidiary year, any write-off in this quarter regarding the subsidies are completely amounted return of?
No, I think no more write-offs, everything is that.
Sir, my last question, sir. While tax liability is so low. It is around INR 120, what would [indiscernible] INR 129 crores on consolidated basis and the current tax is only INR 4 crores?
So 2 things. One is, one year is no more a subsidiary. We have done margin to company. So it is now a division of any further step. And we recall that in March, we did an impairment of assets, it should be spread over 2 years. So that's how we get the test what will contribute to the expense and tax provision.
So can you just give how much tax we expect it to pay into ‘24 and '25?
Very difficult. That will depend on how much profit and is in the future. So...
Okay, thank you. If rendering, I will read [indiscernible]. Thanks. Thanks a lot, sir.
[Operator Instructions] The next question is from the line of Damayanti Kerai from HSBC, please go ahead.
Hi, thank you for the opportunity. My question is for Pranav. So Pranav, some of your peers are talking about normalized price erosion in the U.S. and then opportunities emerging due to state, et cetera. So how does Alembic stand here in terms of gaining from such opportunity? Or like what are your broader observation on the U.S. pricing opportunity, et cetera, from next few quarters' perspective?
So as you know, historically, we've always started for the last 6, 7 years that we've been in the U.S. market. We've always done red when there's shortages in the market, and we've been able to capture those opportunities. So that fundamental still stays because inherently, our strategy is focused on a very robust supply chain and having compliant at our facilities. So if there are shortages, we'd like to take those opportunities. Having said that, the last 3 years, we've seen excess supply in the market and with the buyer consolidation that has really driven prices down. There is a little bit of improvement over the last quarter, I would say, over the last 3 to 6 months. Is there still a price erosion in the market? Definitely, there is this. I think defense molecule to molecule. There were certain segments in the generics, which had a little letter erosion. I think we saw some disruptions in some injectables in some demand some ophthalmic, which were some interesting opportunities. Of course, our injectable portfolio still tenant we just started launching it. So that's where we're seeing some opportunities. Let's see how it goes. But the erosion is still there. And as I mentioned that we are geared up to do well whenever there are shortages in the market.
So especially, do you think the injectables will be interesting from your perspective since you have new plant and you have just started supply with [indiscernible] how much you can achieve, say, in next 2 years or 4 from injectables?
So I think we're not giving guidance on the revenue, but injectable is an area that I think there is a relatively lesser competition than the overseas. While there are some strong players where we continue to keep seeing disruptions in the injectable market. So hopefully, it should throw up for opportunities. Like our portfolio still makes or we only launched 5 products for both the facilities so far. As we keep launching more products as we have more breadth in our portfolio, this will help us will be able to capture more opportunities.
Can you find us how many filings you have done for injectables, like you said, 5 launches? And in terms of filing, how many have been done so far?
From both these facilities, I would say for injectables was also about 15 to 25 years of what we are done.
15 to 25, okay. My last question is other expense trends. So obviously, the first quarter number now reflects full impact of new plants, et cetera. So should we -- was it this base or we can see further expansion in cost in line with like your top line growth, et cetera?
So we don't expect further expansion in cost. I think the cost will be -- I mean, the base is around these numbers.
Okay. So fourth quarter is based most likely going ahead.
Yes. T
Okay, thank you. I'll get back in the queue.
[Operator Instructions] The next question is from the line of AM Lodha from Sanmati, please go ahead.
Thank you very much for the follow-up opportunity. I have observed from the reasons that the API business company is doing very well. There is good growth in API this quarter also besides last quarter. So whether the company is planning in any expense in API, please?
So thank you very much, [indiscernible]. I think the API has been a focus area for us. And quietly over the last 4 quarters or so, the API business has seen pretty decent growth. In the past, I've guided for about 10% to 15% growth in the API business. And I think we will stand at that this year, of course, the first quarter was very good. It was very robust. Our strategy is still the same. We work focused on a robust supply chain with compliances in place, and hopefully, it will help our partners in the business. And that's what kind of we've done well over there, and we'll continue with API business growth going forward as well.
Any expansion in API companies planning?
Yes. So we continue to keep doing expansion. So over the last few years, when we did CapEx, we've been continually expanding our facilities. And as part of the maintenance CapEx, we keep adding more blocks and more facilities in the same plants.
Okay, sir. My second and last question, sir. Regarding 3 new plants, which we have restarted in the last 2 years, they have capitalized in the current quarter, sir? That the commercialization of the 3 new plants have been capitalized, I mean to say the depreciation interest on these 3 new plants has been debited to [indiscernible]?
Yes, yes. Yes, we have capitalized it. And from costs, we have depreciation for these 3 plants already booking for the current quarter.
Okay. But whether production is already -- a product approval is already been commenced by and the plant has been approved by USFDA?
Yes. We have launched between these 2 plants, 5 products actually and commercial production has already started.
Thank you very much, sir. Wish you very good luck, sir, in coming year. Thank you very much, sir.
[Operator Instructions]. The next question is from the line of Bharat Celly from Equirus Securities, please go ahead.
Hi, thank for the opportunity. So just wanted to say actually, during the last quarter, you mentioned that large part of the costs which were associated with the blue plant and already come in the fourth quarter. So I was under the impression that all the costs for in the fourth quarter and [indiscernible] first quarter should have been up flattish. Other expenses are [indiscernible]. So still we are seeing that increase. So can you elaborate what it [indiscernible] plants and what is the cost was there completely during the fourth quarter on?
So you are right to the extent that from 1st of January onwards, we have not capitalized -- we have not done any further capitalization of costs, we have charge it to P&L. But as the plants are now getting approvals and products are getting launched. There is some what we call revamping of lender costs, utility costs and [indiscernible]. So obviously, the cost would -- those costs has gone up a bit. And secondly, it also depends on the cycle of other expenses, some expenses and all of that. So very difficult to do a quarter-on-quarter cost elites. I mean some one item, of course, comes into 1 quarter and the cost was big on a smaller base. But broadly, I think we have -- now what we are saying is we are not forecasting any expenses, whether all the Derma division, which is now over division or of facility. Everything is getting charged of this division.
So is it safe to take the size of big cost item now going forward?
Say it again, I didn't hear your question.
I'm asking here, can we take it as a base for the future quarters? This quarters...
That broadly, we have some valuation will always be in.
Right. And actually, I just wanted to take your mind on the U.S. pricing environment. We have been reading a launch. There have been a changing pricing environment and thereby the overall sizing environment could be very soft as compared to the last quarter. I just wanted a better sense to how you are EBITDA overall, these line items that you are seeing that actually, the prices have started coming down? And have you seen any material change in the overall competition [indiscernible] there by you are seeing a couple of guys running their overall portfolio? Have you seen that yet?
No, actually, I have not seen any material change in terms of any one pruning the portfolio, any fundamental change in the market. So that stays as is. I think the only thing that happened last few months is that there was some regulatory action against some facilities, I think, which has reduced some supply in the market and these companies which had these regulatory issues have high market share and some certain products, which has caused the shortages. But I think we continue to keep seeing shortages in the U.S. market as per the FDA shortage report, but there is still a qubit of supply in the market. So while in terms of pricing, there is still erosion in the market, and I don't see any change there. Is it would less than what it was 6 months back? Yeah, maybe, but it's still less.
Is it possible for you to outline that how much was price rise for lead during the quarter quarter-on-quarter -- from a quarter-on-quarter perspective quarter?
It's very tough to say because it's -- each product is different in certain products, we may have pricing erosion of up to 30%, 40% and certain tests it may be flat with no new entrants coming in. So if I give a figure, and it's not going to be valid because you can't take it, it's not sustained. I mean, it's not -- you can get an acts very product specific.
Right. But I mean it seems to be like double digits. Has it come down to a high single-digit, mid-single digit? Anything like that if you can offer for?
It's still double digits.
Oh, that's it. Thanks a lot. I'll get back to you.
The next question is from the line of Resham Jain from DSP Asset Managers, please go ahead.
Hi, good evening, sir. So I have 3 questions. So first one is in the API business, what kind of root you're looking for in this year? And I think raw material prices have seen some correction plus energy cost a or income correction. So how do you see margin in API? Overall, if you can just help on how do you think the API business was this year?
So the API business, as I've said in the past calls, I expect this business to grow between 10% to 15% year-on-year, and I think we're on track for that. In terms of margins, the margins have been pretty decent in the Asia business. I think we were not affected much due to the higher -- higher price of raw materials that we saw and we were covered and we had a pretty okay on that. While what's tapping the margins, as the price of the raw material comes down, so does the expectation of the finished product in the market as we have more competition as well. So I think margins, we will maintain our API business has got decent margins, and we'll continue maintaining those moving forward.
Okay. And in the domestic business, as you mentioned, season has just started, there has been some delay. So how do you see the rent given that we have built a good sales force also over the last couple of years? And also there also, if you can guide on the margins again given, we have seen inflationary situation in the previous few quarters, which is again moderating?
So on the India piece, I think that delayed monsoon, I think it's one of those things that we will see now for the last 5, 6 years than it changes from year-to-year. I think it's just a matter of delayed onset with kind of slows things down. So I don't think from a manpower and we have any issues and on the acute side, we haven't expanded manpower in the 20 all the previous year -- sorry, in the current year, we haven't spent for the manpower on the acute side, which has the impact of seasonality to it. It's still early but you've seen that delay onset usually leads to a prolonged season on the back end. So you've seen for the last 3 years, we've seen the Q3 has been significantly better in terms of balance compared to Q2. So I think maybe would kind of change in realizing trends. On the margin side, we haven't seen any pressures on the margins either direction, pressure or upside at the moment and we just continue to see the same levels of margins going forward.
Okay. And the last one is on overall capital allocation for this year, given that we have limited CapEx. So how do you see for cash move being redeployed?
So we have said that our newer projects are over. We are building a new facility for the domestic business at [indiscernible], and that will confuse some cash. In the first quarter, we also completed one spending line at its F3 [indiscernible], that is done and capitalized. So going forward, I think the CapEx would be largely maintenance -- maintenance CapEx. So this year, our total CapEx, including the first quarter again during INR 200 crore or so. And going forward, to go on?
Sir, sir, my question was, how are you thinking about cash redeployment? Are you going to increase the pay out? Are you going to -- what are you thinking from the incremental cash induration perspective?
So as of now, we are borrowing of about 500 payments INR 600 crores in books. So that is a repaid out of the private cash flow which we generated. And yes, thereafter [indiscernible] for all opportunities.
Okay, thank you, sir. And all the best.
Thank you.
Thank you. The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services, please go ahead.
Thanks for the opportunity. Sir, given the kind of shortages that are [indiscernible] certain plants having had better issues. So would you like to throw some light in terms of what could be the benefit for us on a -- like for FY '24 basis from this current quarter sales of 48 million tons.
It's not to say on the shortages, how it will impact us and which products. As I said, generally, our strategy has been edited are shortages when it was positioned to take it. But we have seen a lot of shortages in injectables. But as of now, as I said, it's still an early portfolio for us. It's in a nascent stage. We only launched 5 products. As we launch more products, we'll be able to participate in those markets as we go along. So it's tough to say how we're going to move from here onwards. What we are hoping for is this year, we will launch a total of about 20-plus products and hopefully, that will start picking up. And as we move along, we'll see more growth coming in the following quarters.
Okay. So any clarity on the as in 10% to 15% growth also is still very much possible, right, at least at...
We have not given a growth guidance when we don't give a growth ends.
Okay. And on the Animal Health business now that it's become a reasonable size. So if you could just throw some more light in terms of what the strategy would be further expand this business.
Yes. So on the Animal Health side, you see a tremendous run rate. In the current year, we've expanded about 200 people in the Animal Health business, and we created a separate vertical to focus more on key products in the animal health care -- in the large case space. We continue to see very strong traction, and we have some good launches lined up in nonantibiotic food space as well as in terms of probiotics and in some mainline veterinary products. So we're very bullish on this space, and we continue to look at growing it organically as we -- at the same moment that I hope we pick up some upside on the this is.
Understood. Thank you for answering.
The next question is from the line of Rashmi Shetty from Dolat Capital, please go ahead.
Thanks for the opportunity. One question on depreciation. We have seen a quarter-on-quarter this year saying that we have started capitalizing all the plant expenses. So just want to the reason why there is a bit in why that is equal to your per amount of depreciation when there was -- when there used to be capitalization?
Rashmi, that is rate on account of given the earlier effect that we had in the previous quarter, which does not continue in this, so that would enough quarter [indiscernible] where we had [indiscernible]
So this will be the right base to take it for the full year, right?
Yes. Yes.
And your other income seems to be retained by quarter-on-quarter as well as year-on-year or 15, does that include any ForEx income or anything if you want to explain about it?
No, you got it right, actually, for us is an operational income on that accounting standard classified as other income, which is [indiscernible]
Okay. And any ballpark number, can you give on that asset? Because it is very low this quarter for the full year, where we have guided 17% to 18%, should be modeling the same number as of now you see that it should be lower than the number which we had guided?
So in this year, the measures are likely renew it [indiscernible] is an expense, we are going to be claim the [indiscernible].
Okay. Any ballpark number which you can guide on that space?
It will depend on total profit and minus impairment. So like it's like giving [indiscernible] a discount.
Understood. And on FY '25, that asset would go a 17% to 18%, right?
Sorry, going forward?
Yes, going forward.
We will be back to that.
Okay. And with the current operational expenses, our EBITDA margin is now in the range of 13% to 14%. In the next few quarters, will it be sustainable or we do have hope for expansion from the current levels?
The sales grow [indiscernible] likely to see at current levels. So the sales growth, which we hope with the margin should expand.
Okay, alright. And that's it for my side.
The next question is from the line of Sandeep Raj from Oculus Capital, please go ahead.
Good evening, sir. I had questions, particularly on the injectables. When can we expect revenue generation from the injectables?
It started already. I think as I said earlier in the call, we've got launched by products, which are on the injectable facilities from the Oncor and one from the general injectable. So revenue started. And as we have -- as we launch more products, we will gradually ramp up as well.
Okay. May I ask how much was the revenue for quarter 1?
We haven't given that we have disclosed the breakup, but we don't disclose the facility-wise.
Okay. And regarding the pricing scenario specifically for injectables, how is starting?
I think it's tough for me to comment because it's still a little early for us. As I mentioned, just the last quarter was the first quarter that we started launching products and 4, 5 products is not a large enough set to give an analysis. I think hopefully, by the end of the year, we'll give you a bit of perspective on ends as well.
Okay, sir. Got it. Perfect. That's all for my side. Thank you.
Thank you. The next question is from the line of Bharat Celly from Equirus Securities, please go ahead.
Hi, thanks for the follow-up. Just wanted to get a sense on gross margins. We have seen a sharp expansion sequentially. So [indiscernible] a certain has lefted?
So gross margin is a factor of product mix on the margins in our sales is really maintaining the gross margin more or less over the last few quarters. The margin dependence is more on overheads because it's increasing over at the market but otherwise, gross caring are around 70-odd percent plus time a couple of points.
Have you seen any softening of raw material prices, which could help us during this quarter?
Not really. I think the unclaimed cost for us has been fairly steady.
Okay, that's it for me. Thank you.
The next question is from the line of Jainil Shah from JM Financial, please go ahead.
Hi, thank you for the opportunity. My question is on the U.S. business. We've been launching new products from our new facilities. So what -- when do we see this business becoming profitable? Any meaningful launches that you would like to call out?
So the business has always been profitable for us, and we don't really give a disclose vertical-wise profitability. But as we go along, hopefully, we will have more launches. As I said, we will launch 20 products this year in the U.S. to help build up -- the other thing is we've seen a reduction in R&D spend, which used to be almost INR 600 crores has come down to 5, they come down to INR 500 crores this year [indiscernible].
And what is our margin aspiration in 2 to 3 years down the line, where do we see that heading?
No, actually, again, again would amount to be in guidance, which currently we are not because we still need to test newer facilities eroded the market. But aspirational margins without really missing it with our recurring performance. So with that tail, we would very success.
And is it fair to assume that 1Q margin would be bottom and we could see improvement going forward?
I think I already responded to this question that the overall largely [indiscernible] in the sales grow the margins are [indiscernible] this business.
Okay, thank you so much.
The next question is from the line of Nitin Gandhi from InQuest Advisories, please go ahead.
Thanks for taking my question. What is the asset turnover plan for injectable facility?
Too early at this point in time to…
No, no, no, when you design the plant historic what does the – in your mindset -- I'm not asking what is current expectations.
Very difficult to put it in U.S. environment because product could generate -- give you like $100 and paying product could spend for $3. [indiscernible], right?
Okay. How would the amount capitalized for injectable facility?
So for all these 3 plants [indiscernible] it was around INR 2,000 crores of which was around INR 1,100 crores across at last year.
Okay. Thank you very much.
[Operator Instructions]. The next question is from the line of Rashmi Shetty from Dolat Capital, please go ahead.
Thanks for the opportunity. Just one follow-up question on the U.S. business. Like you said that the price duration is [indiscernible] in double-digit on average. Can you just specify this happens, where do we stand? Is it higher than the average tradition for your portfolio in all the price relation has slowed down?
As I mentioned, it's very tough to say product specific cloud erosion work bones, heavy line revenue [indiscernible] lanes on the take a market share. So it's very tough to update it or to extrapolation on when [indiscernible]. So this is generally what we've seen across the portfolio with a double-digit portfolio. Let's say double-digit erosion, and it's right up to single out a statin or particular store in. In certain cases, there may be a new entrant or a more in certain cases that are a – it's very tough to answer to it.
Okay, sir. That's it for my side. Thank you so much.
Thank you. Ladies and gentlemen, as there are no further questions. I would now like to hand the conference over to Mr. R.K. Baheti for his closing comments. Thank you, and over to you.
Thank you very much everybody once again, and wish you all the best. We'll see you all in the quarter call. Thank you.
Thank you. On behalf of Alembic Pharmaceuticals Limited, we conclude today's conference. Thank you all for joining, you may now disconnect your lines.