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Alembic Pharmaceuticals Ltd
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Ladies and gentlemen, good day, and welcome to the Q4 FY '21 Earnings Conference Call of Alembic Pharmaceuticals Limited. We have with us today on the call Mr. Pranav Amin, Managing Director; Mr. R.K. Baheti, Director Finance and CFO; Mr. Mitanshu Shah, Head Finance; and Mr. Ajay Kumar Desai, Senior VP, Finance. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. R.K. Baheti, Director Finance and CFO. Thank you, and over to you, sir.
Thank you. Good evening, everyone. Thank you for joining the fourth quarter results, and of course, the annual organization's conference call. I'm sure you would have viewed our results. However, let me briefly take you through our numbers for the quarter ended 31st March 2021 and the year ended 31st March 2021. I'll start the financials. During the quarter, our total revenue grew by 6% to INR 1,280 crores. EBITDA grew by 6% again to INR 359 crores. This is 28% of our sales. Profit before tax grew by again 6% to INR 305 crores, while profit after tax went up by 12% to INR 251 crores. EPS for the quarter is INR 12.75 per share on the expanded capital versus INR 11.19 in the corresponding quarter in the previous year. During the full year financial year ended 31st March 2021, our total revenue grew by 17% to INR 5,393 crores. EBITDA grew by 35% to INR 1,631 crores, and this EBITDA is 30% of sales. Profit before tax went up by 39% to INR 1,430 crores and profit after tax went up by 42% to INR 1,178 crores. EPS for the quarter -- I'm sorry, EPS for the year ended -- quarter we have already talked -- EPS of the year ended is INR 60.81 per share, close to INR 61 per share on weighted average expanded capital, versus INR 43.97 on all capital in the corresponding previous year. CapEx. CapEx for the quarter ended INR 178 crores. Previous year -- this quarter -- or previous year -- sorry, full financial year is INR 687 crore. INR 687 crores for the full financial year ended 31st March 2021. Cumulative CapEx for the ongoing projects, including the preoperative expenses, is INR 1,800 crores. Financial assistance to Aleor for the quarter is INR 20 crores. For the full year, it is INR 145 crores. Borrowings. We have no short-term borrowing, we only have debenture issued, which has a fixed maturity period. So the net -- so the gross borrowing is about INR 500 crores, all by -- through the debentures. Net volume, that is net including -- I mean net of cash in hand is about INR 208 crores. This was INR 1,674 crores in March 2020. So net debt to equity now is virtually negative at 0.04, 0.04 I repeat. Dividend. The Board, at its meeting held earlier in the day, declared a dividend of INR 14 per share, 1 4 per share. That is against -- on a face value of INR 2 per share was down to [ 700% ]. Previous year, this was INR 10 per share, and the INR 10 per share was also -- included INR 3 per share as a special dividend. So last year, it was INR 7 plus INR 3, total INR 10. This year, it is INR 14. I will now hand over the discussion to Pranav for his presentation on the international business.
Thank you, Mr. Baheti. It was a good year for the international business. We saw growth across all our territories, API, U.S. as well as the ex U.S. formulations. The GMP compliance continues to remain a focus area for us. Our F3, which is the general Injectable Formulations plant, was audited by the FDA in February. This was deemed mission critical. That's why they came and physically audited. They gave us 5 observations. Most of these were procedural. We replied to them and are in discussion with them to see what happens. Once we hear back from them, we'll let you all know. EIRs are in place for all the other commercialized facilities.The U.S. business is firmly in place with new approvals and launches. Expectedly, I think a lot of you guys have been asking about the sartans and, yes, the sartan prices have come down with competition. This has happened gradually over the period of the last 6 months. We are happy that we took the opportunity of the business, and it lasted much longer than what we had initially expected. Moving forward, we expect this to be a new base which will be little lower than what we've been getting in the past few quarters. But that's a part of the business, and we're happy with that. We filed 13 ANDAs during the quarter, of which 4 were for Aleor. And for the year, we filed 29 ANDAs. As you know, our drug discovery with Rhizen had out-licensed to TG Therapeutics the first product, umbralisib, which is incidentally the first product to have been developed in India. Rhizen -- I'm sorry, TG Therapeutics has launched its product called UKONIQ for 2 indications. And they just commercialized it recently. We're waiting to see how that goes. We're also awaiting studies and data on a new indication for CLL, which is a much larger indication. So that's quite exciting. Let's see how that goes. Our R&D expense was INR 195 crores in the quarter, which was 15% of [ revenues ], and INR 670 crores for the year, which is approximately 12% of sales. We see 4 approvals during the quarter, and cumulatively have 139 ANDA approvals. We also launched 3 products during the quarter and 16 for the full year. For the next year, we expect to launch about 15 products in the market. Coming to the numbers. The international formulations was relatively flat at INR 700 crores in the quarter and grew 19% to INR 2,942 crores for FY '21. U.S. generics, we grew by 18% to INR 475 crores for the quarter and grew 9% to INR 2,163 crores for the year. Ex U.S., the generics continued their growth to 77% to INR 233 crores for the quarter and 57% to INR 779 crores for the year. API business also continued its growth by 38% to INR 214 crores for the quarter, and for the year at 35% to INR 955 crores for FY '21. As regards to the domestic formulation business, India formulations business grew 5% to INR 358 crores in the quarter and 5% to almost INR 1,500 crores in FY '21. As you know, Alembic doesn't have too many COVID products, but as a trial is being used and we're seeing a good uptick in that over the last couple of weeks. As regards our rest of our domestic business, we're seeing some ramp-up in specialty and we've seen some headway in specialty space in some of the therapies, so that's exciting. I would now open the floor for Q&A.
[Operator Instructions] The first question is from the line of Yash Gupta from Angel Broking.
Sir, my first question is on the R&D cost. So for this quarter I was wondering, R&D cost has moved from INR 148-odd crores to INR 195-odd crores. So is there any special thing happened in for the quarter?
No, our R&D cost, it really depends how the projects are progressing. At the beginning of the year, we had said about INR 650-odd crores is what we'll expect to spend during the year and we've ended up with that kind of a number. It just depends that sometimes you have some quarters where you more fees, more of the FTF fees, past studies are passed to that. So that's about it, it's just a quarter-to-quarter variance.
Okay. Sir, second question, can you throw some light on what type of product that will be launched in FY 2020 to those 10 products to be launched in the U.S. market?
So we don't give guidance, so we don't disclose what products we are launching until we get the final approval. That's when we send it out to the exchanges. The 15 products that we expect to launch this year will be predominantly oral solid dosages, derm, as well as ophthalmic products that we will launch in the market.
Next question is from the line of [ Venkat ] from [indiscernible] Financials.
My question is more very generic in nature. So the Western media is talking about the coronavirus and its impact. So what are you listening from your customers? So will there be any potential loss of business because of this? Or how do you see this happening?
So we don't really have any therapies for coronavirus.
No, I know that. No, I'm not asking from therapy side actually. But in general, what is the customers' perception, particularly from the Western world, Europe and U.S., or North American?
I think it's tough to say. We don't really generalize because we're a generic company. It's tough to say. I think what we read in the papers is what everyone is seeing. There's no input particularly from many customers about this.
As far as India is concerned, we -- I mean in spite of this lockdowns or partial lockdowns, we believe that doctors are prioritizing, unlike earlier year last year when they are completely stopped their clinics. This year, they are -- most of them and their surgeon that have been vaccinated. And they are in their clinics. To that extent, we don't expect the issues. Of course, the patients have to come to the doctor's clinic, that's the change.
Next question is from the line of [ Karanveer Singh ] from Sunidhi Securities.
On the U.S. business, the decline in U.S. business is primarily due to loss in sartan? Or are their other products has also performed not as to our expectation?
Yes. So what is happening is, as I mentioned with sartan is up until the first half of this year, we saw sartans opportunity. Thereafter, we saw it dwindling a little bit slowly and while we finished off some contracts. Bulk of it has come from the sartans. And we've been saying that U.S. we expect for quarterly sales rate about 70-odd million. I think new base now will be about $55 million to $60 million because of the erosion that has taken place on the sartans moving forward.
Okay. $55 million to $65 million quarterly, you are saying?
$55 million to $60 million, compared to $70 million, $75 million. So about $10 million to $15-odd million is what we will see erosion on pricing in the sartans.
Okay. Because in last call, you mentioned that now sartan prices surely has stabilized and even the market share is also somehow stable. So that means in this quarter, we have again lost some -- your market share or...
It's not a question of market share is just pricing, and it's an ongoing thing, I said. A lot of players are there in the market and supplies are stabilized. But I guess if -- I think we've seen a further reduction in prices in this quarter. So I think this is the new base for us moving forward.
Okay. And secondly, on -- if you could give an update on injectable -- oncology injectable setup, when we can expect now to get it to...
Oncology injectables is some -- is a facility where we'll be filing up also our products in the next 3 to 6 months. Once we file that, that will trigger an FDA inspection. But then it depends on the FDA whether they will physically come out or not. So that awaits to be seen.
And we have already started filing from other 2 facilities, that 2 new facilities, Jarod and...
So Jarod is also we have filed, but I don't expect the U.S. FDA will come for that facility anytime soon. That is just another OSD facility. So it's not mission critical for us. As well, we already have a commercialized OSD facility. So the other one is the F3, what we call the general injectables, where the FDA has already come and they've given us a few observations, which we have replied to.
The next question is from the line of Anmol Ganjoo from JM Financial.
My first question is slightly a repetition. So when we look at the 18% decline in U.S. and we were to kind of attribute a significant part of this to normalization, or even from a base portfolio standpoint, we see the pricing pressure has been significant, or nothing has changed there? So any of the 3, please.
Yes. So I think, by and large, Anmol, it's been sartans for this quarter, at least sort of sartans. During the year, we had other products, but that is something that, on a quarter-on-quarter basis, we haven't seen that as yet. Right now, we've only seen that on the sartans, which were a big chunk of our portfolio last year.
That's helpful. My second question is on the sharp growth in non-U.S. generics. So anything in specific you would like to call out here? Or...
I think, Anmol, in the -- in terms of this, there's nothing specific per se. I think we've just continued supply and order books look like that. We have to put this into perspective that last year itself was very weak in U.S. territory. So that is one of the reasons why the numbers look much rosier than that what -- the last 2 years have been quite weak for supplies for us. That's why it looks better. But I expect growth to continue not at these levels, but a normalized level about 10%, 15% or so.
That's helpful. My third question is on KPI. Full year 35% growth, so quite healthy base to contend with for the next year. But with this new base, what do we think this part of the business looks like in terms of...
Yes. Yes, good question, Anmol. Again, I would like to break up this API business into the first half of the year and the second half. First half of the year, we started off in a bang where there was lots of opportunities due to the disruptions from China, and the first half is a lot more robust in terms of growth. Part of that has tapered down because Chinese companies are back on supplies, and also the use of azithromycin in the treatment of COVID has come down compared to what it was from March 2020 until June 2020 or July 2020. That is one reason. Second thing, what happened is the Chinese are back in the market, so there's some competition there. Having said that, the API business on this new base, I do expect it to grow by 10% at least. Moving forward, we've got a good headway into some customers. This particular quarter, Q4 was a little lumpy because we had won a large contract manufacturing deal where we supply quite a bit of product.
And my last question, Pranav, if I may. So 15 product launches for next year, around $55 million to $60 million quarterly run rate in the U.S. So when we look at the next year, do you think that $300 million to $325 million is where our new base should thrive when we look at the U.S. from a full year picture standpoint? Does that look reasonable in terms of when we map out the U.S. business next year?
So no, I would not like to give a guidance. I haven't said that. I think for the U.S., we will not have much growth for the next couple of quarters because we were -- while new products, all our new launches have done well, the whole sartans and the onetime buy opportunities we had in the last 2, 3 years was quite chunky. And so I expect the U.S. to be muted. It'll actually be a degrowth if you see that going from a base of $70 million, $75 million to $55 million to $60 million. So it will be muted, maybe a little bit of a degrowth. We try and make up whatever we can with the new launches.
The next question is from the line of Damayanti Kerai from HSBC Securities.
My first question is on the operating cost. So obviously, R&D is lumpy quarter-on-quarter depending on progress in projects, but we have seen a bit of variation in staff cost and other operating expenses also. So how should we look at this part going ahead? And you still maintain that INR 50 EPS guidance for FY '22?
Yes. As of now, again, there's a lot of variables and unknowns. But as of now, we are holding on to our EPS guidance of INR 50. As regards the costs, I'll let Mr. R.K. Baheti just jump in.
Yes. I think broadly, the costs are in line quarter after the quarter. But if you have any specific observations, just tell me. I mean we can clarify further.
No, I was just asking from a difference in, say, staff cost and ex R&D, other expenses in fourth quarter?
If you look at fourth quarter when we compare with the previous quarter, that is quarter 3, we are almost flat. Similar numbers.
Okay. So my second question is on India part. So this again, substantial decline. Is it more due to, I'll say, seasonality in sales or the anti-infective sales are coming down? And going ahead, how we should look at India growth in a very broad sense?
Sure. So you would have seen our specialty divisions have all grown well: cardio, diabetology, gastro, women's health care also. All of them have grown in line with market or slightly better than the market. Where we are facing some headwinds are acute diseases. But within acute, I would say anti-infective is relatively better. We are a little better than the market. We have grown anti-infectives 5% against the market degrowth of [ 12% ]. But cough and cold, we have degrown and the whole market has been degrown. We have been more in line with that. Also, in acute, I think we have a large pediatric portfolio and the pediatric portfolio continues to degrow, which is true for the entire industry. Going forward, as I mentioned earlier, we don't expect the last year's kind of no show, even if there are lockdowns or partial lockdowns. The doctors have largely been vaccinated, most of them in double dose, and they are operating in their clinics. And hopefully, it should -- could be on quickly. So very early days, but I think as of now, we seem to be in line with our growth, what you call, expectations.
Sure. And my last question would be on CapEx. How should we look at CapEx plan for FY '22? And do you have plan to expand on the API facilities?
So we have -- this year itself, in March '21, we have spent some money on API and this part of our CapEx for the year, which I talked about. Broadly, the project-related CapEx is over, behind us, and I think there will be some maintenance CapEx. There'll be some addition because of this preoperative continuing. And probably, during the latter part of the year, depending on how soon we get the [indiscernible] for the general injectable facility, as we said in the earlier call, we may be putting up additional lines. So that will cost some money.
Okay. So barring the project cost, we should be broadly in -- I'll say, mostly continuing with the maintenance and some expansion on existing facilities?
Yes, yes..
The next question is from the line of Charulata Gaidhani from Dalal & Broacha.
Yes. My question pertains to ROW. Can you give some more details in terms of ROW growth, whether it has come down on new markets or volume prices?
Sorry, [indiscernible] ROW, I didn't catch that.
Yes. ROW markets or the...
The growth has been -- it's not the pricing growth. It's been predominantly volume growth. Because what happened in the ROW markets, which is, for us, Europe, Australia and Canada, what happened is over the last 2 years, FY '19, FY '20 were quite weak in terms of supplies and we had large supply chain-based issues to the serialization. So this is mainly volume-based growth in these markets. There's been no pricing change because we supply to our partners, who are the pharmaceutic companies who market these in their territories.
Okay. And how much of the overall sales would be coming from COVID?
COVID, we don't -- as I mentioned earlier, we don't really have any COVID products per se. The only one that we have is in the India market, azithromycin, our brand Azithral, was used during the early part of the year and then again right now last couple of weeks. But that's often [ respiratory tract ] infections. That's the only one, that's only direct COVID therapy that they have.
Okay. We are not exporting?
No. We are exporting azithromycin as an API, but nothing else.
Okay. Okay. And can you give the quantum of CapEx for FY '22?
So as I said, it will be largely [indiscernible] CapEx and the pre-ops, depending on at what point of time we get approvals for the injectable facility and how the volumes pick up will -- and put up more lines on the injectable plant.\
Yes. But the amount?
So depending on the situation, it will be between INR 500 crores and [ INR 700 crores ].
INR 500 crores.
Yes.
Okay. Yes, fine. And how much of India growth do you expect for FY '22?
So we don't give guidance on the sales numbers. But as I mentioned in my opening statement, we expect our specialty business to grow faster than the RPM, their respective molecules in the industry. And hopefully, acute now should start picking up again.
The next question is from the line of [ Aditya ], an individual investor.
I just want to understand the API business. It was regarding the azithromycin, what we have got the growth regarding that only? Or are we seeing anymore demand or we are increasing the capacity?
So API, the growth was across all our products. Azithromycin is a big product for us where we do supply all over the world. So that is one part. But most of our products across the -- across our portfolio is where we've seen growth. And we've seen growth across the territory for all the API business as well.
Okay.
So across also in India what Pranav is saying -- there was also a growth there, but [indiscernible] adding more products and we are having more [indiscernible] in the market [indiscernible].
Okay. Okay. And then one more thing regarding India business. As we see, we are having large exposure to U.S. market, so there are always uncertainties regarding pricing or everything. As we see, a very less contribution is coming from India business. As you see, large pharma companies also, they are trying to increase their market in India business. So what is your view regarding the India business? How do you want to maintain the India business within the branded business?
So Aditya, actually, you have to see, of course, our peers in the industry. Each one has a different percentage of international versus India. You can see on one extreme we have an [indiscernible], which is almost [indiscernible] and [indiscernible] pretty much largely in the India business was at [indiscernible] about 80% India business. So it's really where we are and where we want to be. Number two, they are not -- it's not one at the cost of the other, some mutually exclusive. India business, as you know, can continue to grow, and there's nothing stopping us from not focusing on India business, right? The addressable opportunity size in the U.S. is much larger. That's why we've seen our U.S. business, if you don't take this year -- or we take this year where we've grown only 9%, but over the last 5 years, we've grown at a CAGR of over 25%. Versus India, you can grow consistently anywhere between 5% to 10%, 15% depending on where you are. Again, the India business is very different because it's a high ROCE kind of a business, where the returns are much higher because not much CapEx is required. So it's not mutually exclusive. I think both can co-exist, and that's how we've set up Alembic also.
Okay. So we do see like in 5 years, your India business, regarding the revenue contribution, it will be the same like what it is right now? Or you want to increase more branded business?
I think we are trying to grow all our businesses. So there's no question about India business will also continue to grow, as well as the U.S., both.
The next question is from the line of Kunal from Vallum India Discovery Fund.
Sir, firstly, I wanted to understand regarding this FDA inspection which happened in February '21 for F3. We need to understand the process and methodology which FDA followed in doing this virtual audits.
So actually, the audit wasn't a virtual audit. It was a physical audit, where they came in person. In February, a team came. They are not coming generally. They're only coming if they deem there's some product which they claim is mission-critical. We were following up with the FDA to get them to do a physical audit, because we wanted the plant to become up -- to be up and ready. And they came in person and they conducted the audit.
Understood. Understood. And regarding Aleor, could you please give us an understanding as to how we expect the launches in Aleor to happen over the next 2 years? And could you also give us a number of the total investment which has gone into Aleor till date, including the CapEx and the [ free-off ] losses and R&D investments combined?
We have been like close to 10-odd filings we have been doing, actually, and we've started getting approvals also in the same tandem. We've right now with 8 products launched as far as Aleor is concerned. But we need a meaningful basket, I mean. So I think within 1.5 years from now, we would have basket of 25, 30 products. And then it would make some sense in terms of total top line, bottom line contribution, actually. We spent close to INR 250 crores on CapEx, we spent INR 300 crores on R&D. And yes, that is how the Aleor balance sheet looks like at this point in time.
That's very helpful, sir. And sir, one thing I want to understand regarding the [indiscernible] capacity. By that, I mean the capacity to supply not just the outside customers, but our own formulation units. So sir, where we are in terms of the capacity that we have for the API to fund the next level of growth once we get the orders for which we have the F4 ready in the next 12 to 15 months, hopefully? So are you in a situation where if there will be a constraint for growth and vertical integration for our products?
So we have been also -- as I said, we have been investing in API and been increasing the API capacity [indiscernible]. So we don't plan to put up a new campus or anything. But in the existing campuses there are, [indiscernible]1, 2, 3, all are expanding. So we are okay with the [indiscernible] should be taking care of all this [indiscernible].
Understood. Sir, and just final question from me. Now at this level of ex U.S. business, the ROW business. So this business, being a purely B2B business, I wanted to understand, sir, how -- regarding the margin profile of this business, do you see that this margin of this business is [indiscernible] business? Or would you say that this is in line with the U.S. business of the [indiscernible]?
We don't give geographically a margin breakup. Having said that, the ROW business, as we've seen, is pretty amazing growth this year, 57%. Next year onwards, I expect it to grow by about 10% to 15% or so.
Next question is from the line of Saion Mukherjee from Nomura.
Yes. I hope things are okay at your end. I just wondering, operationally, what kind of challenges because these COVID cases have spread to every nook and corner. So when you look at your operations, plant operations, MRs on the field, what kind of challenges -- I mean are you facing any difficulties people coming to work, et cetera? And operationally, is it hurting your operation in any way?
Yes. So I'll answer in 2 aspects. One is for the plants that we have for the international market in and around of our corporate in Vadodara, we are actually okay. I think at the corporate, we have fewer people and we have more and more work from home. But as regards to manufacturing, we are coping okay with this, and it's not impacting operations in any way.
We are saying in the field, I think the full movement has been restricted a bit. But now the MRs have an experience of doing virtual calls with their doctors through phones, Zooms, engaging them to [indiscernible] detailing of the product. So far, the truth, it's good, I mean better than last year. At least people have learned to live in this situation, and we are better off.
And sir, on vaccination, is there a priority for the sector and people operating in the sector? Is it possible to vaccinate employees faster?
So ICA and I think a couple of other organizations have written to the government. But at that time, there was no positive response. Now, of course, vaccination is open to everywhere anyone above 18. So I think the -- once the availability becomes better, we expect the vaccination also to pick up the speed.
Okay. And sir, one question on any...
I'm talking about our employees. Of course, there are doctors and [indiscernible] the business and makes everything...
No, I'm just saying on the pharma industry, being an essential industry, the people working in plants, is there any priority?
No such priority.
No, so it seems there is not. Okay. Okay. And sir, on the cost side, anything that you would like to highlight on the raw material front, on logistics front, anything which is worrisome at this point?
As regard to supply chain, raw material logistics, they're absolutely fine. I don't see any issues at all. Last year was a very different story. Again, last year, also not that we had any issues, but right now, we are not seeing any issues.
Okay. Sir, one very specific question, if I can, just the CapEx number for this year and next year, I might have missed it. If you can just repeat it, sir?
So this year, CapEx is about I think 600 and...
INR 670 crores [indiscernible]
Okay. So this year, March 21, we had a CapEx of INR 670 crores. And as I mentioned, the [ API ] [indiscernible] will be in similar range in the coming year. So INR 500 crores for maintenance CapEx and [indiscernible], et cetera. And a couple of hundred crores, depending on the situation at that point of time, on expanding the capacity for our injectable facility. [indiscernible]
The next question is from the line of [ Pathik Gandotra ] from [ Dron Capital ].
Yes. I had just one question that this new -- the CapEx plan, the project that we've finished on injectables, I mean when should one reasonably -- obviously depending on the FDA approval, but reasonably when should one expect revenues to come? And when should one expect that this capacity is reasonably utilized and almost fully utilized? I mean how many years do you think it will take for your...
I think in terms of starting commercialization, I would say the earliest that will happen would be H2 of this year. That's a reasonable expectation. As regards getting to full capacity utilization, as you know, the facility has provisioned for 6 lines. We've only populated with 3 so far. So it depends. I think some -- I think one of the lines we expect by 2024. FY '25 is when it will be fully occupied and we'll have to expand that out. The other 2 will be okay. But I would say FY '24, '25 is when we'll be at a decent level of commercialization.
Yes. And you have approvals already in place, right, for a few injectable products?
No. Because until the FDA clears the facility, you will not get any approvals. We've got filings in place.
The next question is from the line of Nitin Agarwal from DAM Capital.
Sir, on the costs related to the domestic promotions, what has your experience been? Has there been any sustainable savings to eventually come through in the domestic side given the way the business has changed in the domestic business?
So there has been some reduction in the traveling costs. But we were -- like we discussed in the past, our travel expenses are mostly scientific sales driven and incoming support to doctors. So that continues. We have not seen much significant change in that.
So on a broad level, not much from a structural selling perspective that has come through in the cost to regard from a domestic promotion perspective?
Yes, that's right.
Okay. And then on the U.S. business, now if you were to just back out the sartan business and in terms of where the business is going to be next year, versus your expectations, I mean is this in line with what you would have seen the business to be in, say, a couple of years back? Or has there been some sort of setbacks versus what were your initial expectation would have been around the side of the business?
So I think it's a combination. I think there have been some positives and some negatives. I think in terms of generally, I think the U.S. business in certain segments has been more competitive than what we had anticipated. If we take the sartans out, and I think much starts from -- but across the board with our peers in the industry as well. So there's been more competition in certain areas. Especially some portfolios such as derm and some of the others, there's been a lot more competition than we expected. The sartans was a surprise I didn't expect. So that was a big positive. So by and large, I think we're okay where we see the business going forward. In terms of our internal product selection and how we look at the U.S. business, we've become a little more stringent. We've changed our outlook a little bit. Having said that, in our outlook, we changed our expectations a little bit higher for that. In the mid- to long term, we're still quite bullish on the U.S. market and we expect it to be a decent market.
And if I can just, the last one. Mr. Baheti, on the costs, I think with sartans now sort of normalizing out, the 74%, 75% gross margins now should be a broadly sustainable margin number to revenue?
Yes, a couple of basis points here and there going to in the year-end.
The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.
Just one clarity on this inspection related to injectable facility and the product approval. So the product approval is stuck because of product-specific queries? Or they have the compliance-related queries on the plant side?
So the product will only get approved once the facility is approved. And this is a first time filing, so hence, the facility has to get approved first. Once the facility is approved, automatically the product approval go through.
And so just to extend to that, so whatever related to -- observation related to work which...
It's more -- the observations are more related to processes and systems in place.
The next question is from the line of Sameer Deshpande from Fair Deal Investments.
I would like to know in the balance sheet, our property plant equipment is around INR 1,700-odd crores and our capital work in progress is around INR 1,950 crores. So what is the onetime of investment which will be capitalized out of this capital work in progress during this year? And how much is the investment we have made for U.S. export purposes in this capital WIP?
So this entire investment that you see of INR 1,900-odd crores, of which INR 1,800 crores is on account of the new plant, which is F2, F3 and F4. And predominantly, these plants are for catering U.S. markets actually. We expect -- as and when we expect approvals to come in for the plants and we put these plans to use, this would get capitalized and put to use.
Currently, because of this pandemic, the movement of the people -- physical movement of the people from U.S. to India, et cetera, may not be possible. So it will take further time? Or it will be approved [ a month or ] some other way?
We saw in January, as you know, one of our plants -- F3 plants injectable, general injectable plant, was inspected, I mean, by U.S. FDA. But I mean it is uncertain that when other plants would get audited.
Until they are audited, we cannot start any export, et cetera, from those plants, no?
That is correct.
So we have to see whenever the -- how early they can happen. Okay. So we don't -- for the other countries where our exports have grown very well, in Europe, et cetera, these plants are not of any use for export there?
No. So again, so I think what we're talking about audit and that is for the injectable plant, and we're not selling an injectable products anywhere, not Europe, not U.S. So first is we apply to the U.S. and then we'll add the rest of the plant -- the rest of the commercialized plants, which is API 1, 2, 3 and formulation F1, are approved by Europe as well as Europe -- as well as U.S., Brazil, Canada, everyone.
The next question is from the line of Aditya Khemka from InCred Asset Management.
I got a specific question again. I'm sorry to bring this up again. But the price deflation in sartans, has this happened across SKUs? But is this a few -- couple of large SKUs that saw significant price deflation?
So what has happened is there's 2 aspects of it. One is the ongoing regular routine business that you see on the sartans. And the second is, over the last couple of years, we had a lot of onetime buy opportunities that was across the [ sign ] or across the sale of sartans on various ones. So that onetime buy opportunities have kind of disappeared where we are very high price in this short-term sales. So that has completely disappeared. As regards the other one where we do have shares, we have seen erosion in pricing where some customers -- some additional competition has come. So it's a combination of both.
Right. So therefore, it's fair to say that the price deflation has happened across SKUs, your candesartan and your olmesartan your sartans everywhere.
Yes, absolutely.
Okay. Okay. And the broader pricing -- so sartans were obviously richly priced given the environment and the competitive landscape, and that has normalized. But the rest of the product basket in U.S. that you have, the pricing there has deflated for sure, but has it deflated around the same levels with sartans? Or has it deflated significantly lower?
No, I think, see, by and large, I think what was commercially being supplied, I don't think there's too much of a change in the pricing there. What has disappeared is that a lot of the supply disruptions that we saw, which gave opportunities of short-term supply and onetime buys, those have gone out. Of course, a lot of these were -- a bulk of these were in the sartans, but there was a handful of products where we saw this. But as a combination, those short-term opportunities are all gone from all the products because everyone is pretty much okay on supplies now.
Understood. Understood. And second question, on China. So while we are a vertically integrated company, I'm sure we are still buying some intermediate and basic chemicals from China. Could you give us a sense of how the pricing environment of those raw materials are? Are you seeing any inflation in cost of procuring such materials in China?
No. Actually, we're not -- I mean while we do buy from supply -- we do buy from China, but last year was when there was a little constraint, but still it didn't impact us in any way. There was a little bit of inflation last year when we were trying to get more volumes because we saw a lot of supply opportunities. But this year, no, I think it's fairly stable. We're not seeing any changes. In fact, we more -- we see more supply over the last 6 months from China. So pricing has been fairly stable, if not, there's been some reduction as well.
For the...
And the same would hold for -- sorry.
For the India is just, of course, we are not impacted much. But otherwise, there is a general increase in API prices locally compared to all Chinese imported stock for India business. So as far as we are concerned, the only impactful item is Paracetamol and to some extent [ azithromycin ]. All of the prices are almost stable.
Yes, that's because -- maybe because both these products are being used on COVID patients. So there is an abnormal demand situation there.
[indiscernible] gone up [indiscernible] marginally. But otherwise, the increase in [indiscernible] has been more in vitamins, and other products, we really don't have much of [indiscernible].
Got it. Got it. One last question I have, on the India business. So as you earlier remarked, your specialty businesses are obviously gaining share. And you said that these MRs have learned how to do business. The doctors have been vaccinated. So in the current financial year, FY '22, given that there is an outbreak again, there is a second wave, but doctors are still attending and MRs are still making their calls, would you expect volume growth in the acute segment this year?
So I think to say -- too early to say. But we seeing sector growth to come back in this year, even in acute. Okay, one [ rider ], of course, is it also depends on [indiscernible] acute, particularly. So if we have a good month [indiscernible] predicted initially, I think we should have a good [indiscernible].
The next question is from the line of Vineet Gala from Monarch Networth Capital.
It's Vineet Gala from Monarch Networth Capital. Sir, the launches that we are considering for the U.S. business, that is around 10 to 15, right? So are we considering any injectable launches here out of the plant which is currently under remediation?
No, [indiscernible] side, I have taken only the noninjectable launches. So it should be OSD, derm and ophthalmic.
Okay. Sir, but given the fact that if you are expecting by H2 this injectable facility should be available for service, so there would be a bunching up of a lot of these filings, right?
So I think but not as much. We've only -- I think we've filed about 4, 5 products, I believe, from the 7 products. So it won't be as much bunching, but it will happen gradually. So that's what -- I haven't given that number in this.
Got it. Got it. And sir, how many products have you filed through a CMO partner?
I don't have that details with me. But pretty much all our time exported, what we've launched so far in the market is for CMO.
Okay. So on the -- sir, last question, I just wanted a clarification. In the EPS guidance that you gave 2 quarters back, I just wanted to clarify if you have taken any upside from this rise in profit contribution that can happen because of the alternative milestone-based payments or any kind of outlicensing? Sir, and this is tied for FY '22, '23.
So the figures [indiscernible] it's all part of the business, so I believe, so everything is [indiscernible]. To give a number to that is difficult. It's not something which is marketed by us, so it's done through a -- it's outlicensed to an independent company.
The next question is from the line of Harith Ahamed from Spark Capital Advisors.
For umbralisib, there were approvals for a couple of indications from the U.S. FDA during the quarter. Was there any milestone income for Rhizen on account of those approvals? Is that reflecting in the P&L for us as a share of profits from associates?
Yes, we did get milestone income. But there are [ times ] as well actually, the Rhizen level I mean. So -- and all of that is kind of blended, put into share of profit from joint ventures, which is which you can see at the -- our published result.
Okay. And second one is on our receivable base as of March 2021. It's declined sharply versus September or March of last year. So anything particular to call out there on the receivables front?
Receivables.
Yes, receivables, right?
Yes, trading receivables.
Yes. So last year, we did discuss this actually. We saw kind of U.S. there was a couple lengthy partial or complete lockdown in certain places in the U.S. And that's why there was embargo and we did not get our receivables. So there was abnormal high receivables on -- last March actually, March '20. So this was all kind of got collected in first quarter. And these are more sort of the receivables which you'll see. I mean we are around 50-odd days at this point in time for -- which is the number.
Okay. There's a decline from September levels also, that's my question. I mean I'll -- we can take it off line.
Yes. I mean of course, if you see, the collection has been quite normal in a sense. I mean businesses -- all the businesses, API U.S. branded business, all of them are like back to normal. And that's why these are the kind of day-to-days that we see now.
Okay. And then the last one from my side. When you have given a guidance of INR 50 EPS for FY '22, you had also guided for INR 450 crores of incremental costs from the premium facilities. Now it appears that we will be incurring the entire INR 450 crores this year given that there's been some delays in inspections and then approvals for those facilities. So will there be an upgrade to your EPS guidance because we're not having the full year impact of the costs?
To that extent, the launching for the traction in the U.S. business also gets delayed. So -- I mean maybe [ adds benefit ]. As of now, we stand by this number. And as we progress in the year, we keep reiewing and [indiscernible].
The next question is from the line of Tarang from Old Bridge Capital.
Three questions from my end. What proportion of our external API sales are exported? And some sense on how much of your overall API volumes are captive and how much are external?
So like 95% of our sales are export sales as far as API is concerned. And our B2B sales, okay, are if we put the total volume, I mean close to 35% is for captive and rest is for the external.
Sure. Mr. Amin, you've been significantly investing in R&D, right, from FY '16. Just wanted to get some sense, qualitative sense on how do you measure the efficiency of the R&D dollar that you spend? And also if you could give some metrics that maybe you track internally to judge its efficiency?
Yes. So I think it's a tough one. And because it's a combination of various factors. One is R&D itself, where you go, how long it takes to scale up and what sales you get stocks. So it's very tough to do it. But what we do is before we select a product, we do an IRR NPV per product to see where it goes and how it gets to the market. So we still do that. We have an internal hurdle rate we pick products, which segment we analyze, what time frame it will take, and that's how we do it. And we keep evaluating. We keep dropping products also on a routine basis if we feel the product is getting delayed or if we see that there's more competition entering. So that's some of the things how we evaluate it with.
Okay. Okay. The last one, when will we see the commercialization if your [indiscernible]? I mean what procedural requirement are we looking for that will enable commissioning? And out of the INR 1,945 crores, how much is actually preoperative expenses?
Out of this INR 770 crores are preoperative expenses. And coming to your first question, I mean the only challenge is U.S. FDA giving you approval for the plant. That's the challenge.
So basically, we're waiting for the audit. And once we get an approval, we can commercialize and we'll move to the process there?
The audit has already happened, actually, right? So we're waiting there, I mean. So, yes.
The next question is from the line of Bharat Celly from Equirus.
Yes. So just wanted to clarify on the [indiscernible] operating spend. So it is INR 450 crores and [indiscernible] which we are at -- which is not hitting the P&L yet?
[indiscernible]
Yes. Sir, just wanted to understand on the expense side, how much spend is not -- so it's not getting expensed [indiscernible] getting capitalized in a way related to the new facilities?
Yes. So that's what I said. I mean for the year, it was around INR 250-odd crores. Cumulatively it is INR 770 crores.
INR 250 crores. I know, sir, you used to guide for almost like INR 400 crores, INR 450 crores. So what is the difference between INR 250 crores and the INR 770 crores?
No, that was our last year cumulative number and this INR 770 crores is current, I mean. So INR 450 crores, I'm not able to recall what you are talking about. We can take it offline.
But this [indiscernible], right? This is before deducting all the acquisition on, right? And this doesn't include the acquisition?
The operating is a balance sheet item. I mean so it's...
No, no. This [indiscernible] includes the acquisition. You are right.
It doesn't include, right?
Yes, that's right.
The next question is from the line of Kunal Randeria from Edelweiss.
So through the course of FY '21, while you are very -- given a detailed explanation on how the sartan market has played out, I believe there is also some incremental competition in some of your other lucrative products like ranitidine or febuxostat. So have these products dropped out? Or you see some downside to these products in the coming year?
So as I said, when someone else asked me earlier, I had said that, by and large, most of the earnings that we've seen is in sartans. But I also said that during the course of the year, we had a lot of supply shortages and short-term opportunities on some other products. So one of them was for ranitidine. So in that supply, that kind of also sorted out. I think what we're seeing is not erosion per se in the pricing, but what we're seeing is there's less short-term opportunities available in these products. So that's how we -- that's how I see the products going forward.
Fair enough. Second, just a clarification, whether you have launched [ Remodulin ]? And could this be a meaningful opportunity going forward?
I don't know, famotidine or...
[ Remodulin ].
[ Remodulin ]. [ Remodulin ] is, I think, a possible nominee [indiscernible].
And this could be a major opportunity for you?
No, I don't think it's a very big opportunity per se.
Sure. And just one last question if I can, and it's a slightly longer-term question. So once your new plants are operational and then you'll have 6 formulation plants, how should we look at your annual filing rate? So today, it's around 25 to 30 annually for the past 4, 5 years. So should this double going forward? Or how should we just think about it?
So no, I think what will happen is the ANDA filing rate will remain similar. I don't expect it to go over this 25, 30 kind of a level. We are currently -- and this rate has also included some of the Aleor products, which are the derms, some injectables, some ophthalmics already. So we've already taken that into account. So I don't think this number of filings will go up even with the new facilities, because the filings are already taking place as we speak.
So actually, it has already gone up in last 2 years annually, this 25 plants, when it used to be 20 or lower.
Sure, sure. I understand that. But my main question was, since you have 2 injectable plants going -- coming on stream.
I think [indiscernible] an absolute number, we have only a marginal rise. It would not grow significantly from our current base and so is the number of products filed.
Okay. But then would it be fair to assume your oral forward filings would be coming down and injectables would be going up going forward?
In some sense, yes.
The next question is from the line of Arpit Kapur from IDFC.
Yes. Most of my questions have been answered. Just one bit on the injectable facility. We don't expect a reinspection, right? So whatever assessment or whatever stand we submit, the FDA should approve it. And ideally, we would not expect them to come again and reinspect?
Yes. So as I said, I don't expect FDA to come out for a physical inspection for anyone unless they deem it mission critical. I think since last couple of months, the situation is even worse, there is no chance of anyone coming for an inspection, in my opinion. But I believe with this -- our inspection, now it's going to be online correspondence. The comments that we've seen, the given observations we've replied to. So it's back and forth that we're having with them right now.
Okay. Okay. Okay. And last one is on the CapEx for FY '22, where we are guiding somewhere close to INR 500 crores to INR 600-odd crores. So this will predominantly be for the API plus the non-U.S. exports?
The CapEx will be for API -- part of it will be API, part will be, as Mr. Baheti mentioned, maintenance CapEx of all other facilities.
Okay. So then going forward, we will have, let's say, close to INR 300 crores to INR 400-odd crores of maintenance CapEx?
Yes, exactly.
Actually, we have run out of time. There are a few questions in queue, but may we propose then to take it offline with you [indiscernible]. We've completely run out of time.
I would now like to hand the conference over to Mr. R.K. Baheti, Director of Finance and CFO, for closing comments.
Thanks. Thank you, everyone, for being with us. It's a pleasure always talking to you guys and we'll keep on interacting as we move deeper into the year. And I wish everybody a safe [indiscernible] time. Take care and stay safe. Anybody who has questions that are not being responded, as there are some, I think, repeat question in queue, also can get in touch with us directly offline. We'll be happy to respond. Thank you, everyone.
Thank you. Ladies and gentlemen, on behalf of Alembic Pharmaceuticals Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.