Aurobindo Pharma Ltd
NSE:AUROPHARMA
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
989.8
1 568.05
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
C
|
C3.ai Inc
NYSE:AI
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
Aurobindo Pharma Ltd
You don't have any saved screeners yet
Good day, ladies and gentlemen, and welcome to the Q1 FY '19-'20 Earnings Call of Aurobindo Pharma Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Krishna Kiran, Investor Relations. Thank you, and over to you, sir.
Thank you, Margaret. Good morning, and a warm welcome to our first quarter FY '20 earnings call. I am Krishna Kiran from the Aurobindo Pharma Investor Relations. We hope you have received the Q1 FY '20 financials and the press release that we've sent out yesterday. These are also available on our website.With me, we have our senior management team represented by Mr. N. Govindarajan, Managing Director; Mr. Sanjeev Dani, COO, Head Formulations; Mr. Santhanam Subramanian, CFO; Mr. Swami Iyer, CFO, Aurobindo Pharma USA. We will begin the call with summary highlights from the management followed by an interactive Q&A session.Please note that some of the matters we will discuss today are forward looking, including and without limitations, statements relating to implementation of strategic actions and other affirmations on our future business, business development and commercial performance. While these forward-looking statements exemplify our judgment and future expectations concerning the development of our business, a number of risks, uncertainties and other important factors may cause actual developments and results to differ materially from our expectations. Aurobindo Pharma undertakes no obligation to publicly revise any forward-looking statements to reflect future events or circumstances. And with that, I'll hand the call to Mr. Govindarajan for the highlights. Over to you, sir.
Thank you, Krishna. Good morning, everyone. We are here to discuss the results of the first quarter financial year '19-'20 declared by the company. Revenue increased by 28% year-on-year to INR 5,445 crores led by growth across the markets. The EBITDA before ForEx and other income stood at INR 1,146.4 crores, INR 1,146.4 crores, an increase of 47% over corresponding previous period. EBITDA margin was at 21.1% for the quarter under review. Net profit increased by 40% to INR 636 crores. In terms of the business breakdown, Formulations business contributed to 86.6% of the total revenue and clocked a revenue of INR 4,712 crores, registering a growth of 35% year-on-year. API business revenue came in at INR 732 crores, a dip of 2%.In the Formulations business, the revenue from the U.S. market increased by 42% year-on-year to INR 2,688 crores. On a constant currency basis, U.S. revenue increased by 37% year-on-year basis to $387 million led by new product launches and improvement in volumes of existing products. We have received final approval for 9 ANDAs including 6 injectables and launched 15 products including 4 injectables in the quarter under review. We also filed 12 ANDAs including 3 injectable products during the quarter. Revenue of Aurobindo Pharma USA, the company marketing oral products in the U.S., has increased by 32% year-on-year. Revenue of AuroMedics, the injectable business, witnessed a growth of 86% year-on-year to $67 million. We have filed a total of 116 injectable ANDAs as on 30 June 2019, out of which 71 have received final approval and the balance 45 are under review.The company as on 30 June 2019 has filed 551 ANDAs on a cumulative basis, out of which 386 have final approval and 26 having tentative approvals, including 9 ANDAs which are tentatively approved under the PEPFAR program and the balance 139 ANDAs are under review.Europe Formulations revenue came in at INR 1,392 crores in Q1 FY '19-'20, an increase of 16% growth year-on-year. In euro terms, the revenue increased by 18% year-on-year.Growth market revenues witnessed a total of 22% year-on-year basis to INR 313 crores. On a constant currency basis, growth markets reported a growth of 18% year-on-year.ARV Formulations revenue increased to INR 319 crores compared to INR 156 crores in the corresponding previous period. In terms of segmental classification, U.S. Formulations contributed to 49.4% of the overall revenue in Q1 FY '19-'20 versus 44.5% in Q1 FY '18-'19.Share of EU Formulations decreased to 25.6% in Q1 FY '19 versus 28.2% in Q1 FY '18-'19. Growth Markets share decreased to 5.8% in Q1 FY '19-'20 versus 6% in Q1 FY '18-'19. Share of ARV segment increased to 5.9% in Q1 FY '19-'20 versus 3.7% in Q1 FY '18-'19. API business contributed 13.4% of the total revenue in Q1 FY '19-'20 versus 17.6% in Q1 FY '18-'19. During the quarter, a review we have -- during the quarter, under review, we have commissioned Eugia's manufacturing facility. The facility manufactures oral and injectable products in oncology and hormonal segments. R&D expenditure is at INR 243 crores during the quarter which is 4.5% of the revenue.Net organic CapEx for the quarter is around $47 million. The closing rupees versus U.S. dollar rate was at INR 69.02 in June 2019 and INR 69.155 in March 2019.The net debt has decreased by $131 million quarter-on-quarter to USD 593 million at the end of June 2019 versus $724 million at the end of March 2019. The majority of the company's debt is denominated in foreign currency. The cash and bank balance is at $259 million. The average finance cost is at 2.9% mainly due to availing multiple currency loans.This is all from our end, and we are happy to take your questions now.
[Operator Instructions] The first question is from the line of Neha Manpuria from JPMorgan.
First on the U.S. business, the quarter-on-quarter increase, I understand part of it will be Spectrum. But on the oral solid business, was this contribution largely from new launches? Or this is market share increase that we are seeing in the existing portfolio, be in view that you had mentioned?
Swami?
Yes. Okay. Thank you, Neha, for the question. One is we have seen fair amount of volume increases in some of the products. Apart from that, there has been increase in the sartan business in the Q1. These 2 have contributed significantly to the increase.
And this volume increase would in existing products versus new launches, would that be right?
That's correct.
Okay. Sir, second on the OAI, have the -- and the warning letter. Have you heard back from the FDA in terms of what additionally is required to resolve the issue? And what is your assessment of whether there would be reinspection required or the time line for same. Any color on that, please?
Yes. So as far as Unit XI, I and IX is concerned, I think we've had a regulatory meeting as well. And as far as the further progress is concerned, we have to agree the completion of the CAPAs. And after that, they will come for a reinspection. We expect our completion of whatever committed CAPAs by the end of the year. So subsequent to that, I think we can expect an inspection for all the 3 facilities. End of the calendar year, Neha, just to have clarity on that.
Okay. Sure. And we expect inspection after -- for all 3 facilities even the ones which are not in...
Yes, Neha. I think we would expect inspection for all the 3 units in our best estimate.
Okay. And in terms of approvals pending from these facilities, sir, just to remind us, how many products that could get delayed? And are there any meaningful launches from these?
So there are around total of 15 products, in fact, from all the 3 facilities over the next 2 years. I mean that is the worst case scenario we are talking about. I think, in my opinion, all the products including an injectable I think the market size is less than 30 million as per IQVIA or IMS. But I think that -- again, please remember the fact that we have taken the 2-year period which may not be necessarily the case.
Next question is from the line of Anubhav Aggarwal from Cr?dit Suisse.
On the injectables sales, you mentioned $67 million for AuroMedics. Does this include Spectrum sales or it does not?
Yes, Swami, go on.
All right. So AuroMedics is different from the Spectrum. Spectrum is under a different company. $67 million is excluding the Spectrum sales.
And what would have been corresponding amount for AuroMedics in the fourth quarter, around $60 million?
Around $66 million, Anubhav.
$56 million you mentioned, right?
$66 million, $66 million.
$66 million? It's basically flattish. That's what you're saying.
Yes. It can be considered flattish.
Okay. Understood. Second question was on debt reduction, so certainly a large part of the debt reduction comes from -- came from working capital release. Can we just highlight what led to this release because our sales levels are largely similar to what we are doing so far?
Anubhav, if you have noticed in the last 3 quarters starting this December quarter, our sales has jumped from INR 4,800 crores to INR 5,000 plus crores actually. So those cash are getting realized in the first quarter. In this quarter, we generated a net cash profit of around $140 million, and the working capital drop is only around $40 million. And we have spent lesser CapEx first time. I mean generally, it used to be around $60 million. But this time, we have spent around $48 million only. So this led to a net surplus of $131 million, which is reflected in the debt reduction.
Yes. Absolutely with you, sir. I was just only referring to this $40 million. So that's what I was asking because our sales level has remained. So you're saying that for basically the working capital -- but see, if in third quarter we were doing INR 5,100 crores, then we were doing INR 5,200 crores, now we have done INR 5,350 crores. So these levels are largely similar. That's why I'm asking that why should the working capital get released and why shouldn't you have...
Because earlier we have not generated much cash. In fact, if I recollect, it is a negative cash in third quarter because of the higher working capital. That started releasing from this quarter onwards.
So has the working capital days gone down in any of the geography?
The working capital day has come down really. It has come down.
Any particular geography you want to highlight, sir?
I think it's overall, mostly in U.S. only. Our major sales comes from U.S. and mostly from U.S. And Europe also has struggled and those sales which has happened last year has started, really the cash is getting realized this quarter. Overall, it's an overall reduction. I don't specifically hold to any specific quarter -- specific geography.
The next question is from the line of Damayanti Kerai from HSBC.
Sir, we saw our U.S. injectable sales were broadly stable quarter-on-quarter. So how should we look at this part of the business ramping up in coming quarters? And if you can update us on the status of the bag line and the second lyo line which we were working on.
Yes. On the business, do you want take it, Swami, for me? On the bag line, I can think.
Yes. I think we'll split those into 2 questions. One is on the sales of AuroMedics. And on the bag line, probably, Govind, you can add something, some color to it.
Yes, Swami. Sure, Swami.
As far as the sales of AuroMedics is concerned, we are cautiously optimistic going forward. I think the second quarter would be somewhat close to the quarter 1. But beyond that, I think we would expect that the sales would be better.
Sorry. Beyond second quarter, sales will be better. That's what you said, sir?
It means to say stronger, yes.
Okay. And status on bag line and second line.
The bag line, we have started out batches, Damayanti.
The exhibit batches, right?
Yes. They do the validation batches, not necessarily exhibit batches because existing products need not be going through an exhibit batches. It will be after commencing, we will run a certain number of batches more of a validation batches I think which we have started.
Okay. And the second lyo line.
Second lyo line, I think it is online like I think with whatever we have committed even though we may not be necessarily using it for vancomycin currently.
So it will be mostly used for panto, right, if we are not using it for...
Yes. Because the existing product itself is having good demand like I think so we would be using for that like because at this juncture we are not under any pressure in terms of bringing up that other product because this product itself is consuming that line.
Okay. And if you can update us on the Sandoz closure deal. Now like what we are looking at the time line for closure of this deal.
Sure. So on the Sandoz, we cannot estimate the precise timing of approval as that's a decision of FTC. But we are in regular contact with the FTC as part of our customer recall process, so the clearance. And we are making good progress there. We believe that we are on track to get the transaction closed sometime very soon. I would say sometime soon in the near future.
Okay. Okay. And finally if you can update us on sartan market update, like we had some problem in our plants and all. So how we are doing on the supply side?
Okay. On the supply side, currently, like, I think we are having losartan in the market where we are actually preparing API from outside. And our internal API, including valsartan and olmesartan, actually we filed for the CBE-30 filing, I think which they're awaiting the approval. And after that, we will start supplying those products in terms of the newest -- for valsartan for -- we are awaiting the CBE-30 for the newer supplies. And currently, like I think whatever product which is already sitting in the market has been currently supplied and hopefully we'll get the approval soon and we'll be able to transit to the newer supplies.
The next question is from the line of Shyam Srinivasan from Goldman Sachs.
Just first one on Unit III, can you give us an update on what's happening post the 483 there? And do you think this is a potentially an OAI that could come through in the 90 days?
Yes. First and foremost, we have responded for the 15 days time line whichever we have. And then subsequently, we have also been providing periodic updates to the regulator on the status of corrective actions whatever we have committed. And whether it would be OAI or not is not something which we would like to second guess. In fact, we believe that we have done a detailed work on the 2 observations which are critical including engaging a third party to oversee whatever we have done. And we have submitted a detailed response. So I think it is -- now, I think we will await for further direction.
Sure. And are we getting any approvals post the inspection from Unit III?
There are not very many new products which have been filed from Unit III at all in my opinion. I think there are few products which might be there, now maybe there around 5 or 6 products are there. So I don't think that we are waiting for any approval at this juncture, Krishna?
No, sir. Not obvious.
So unlike Unit VII where we keep filing most of the new products, Shyam, Unit III is like I think is not on the lead plant in terms of filing new products.
Got it. My second question is on the API. I think we have this quarter about 86% formulation and seems to be inching up, with Sandoz, I'm sure will be higher. So I'm just trying to understand from a kind of a strategy point, are we deemphasizing third-party API? I know you will still be vertically integrated but just your thoughts around the API business.
Yes. So I think this is a statement which we have maintained from the beginning, Shyam. Like API would not be growing commensurate to formulation growth because formulation will be growing much faster than API. That's the first aspect of it. Second aspect of it is whenever we measure, we measure only the external sales of whatever we said like INR 700 odd million -- INR 700-odd crores is more in terms of the external sales. We are not measuring the internal sales here. So that is the reason you would never see a true color in terms of what is the overall API. So the overall API whatever you are seeing as 18% is only based on like whatever is being sold to third parties, not being supplied to the internal consumption. So it's not a real measure we can do it, Shyam. You understood?
Yes. Fair enough. Last question is on injectable. I think Swami mentioned a point that Q2 we will start growing, but I thought Ertapenem now has lot more competitors. So what other products can actually kind of maybe offset some of the weakness that could come in Ertapenem?
Yes. Swami, shall I take it up? Yes. So first of all, Shyam, more growth can also happen from Eugia because we already launched around 3 products from Eugia. And there are few more products, which are pending approval both from Eugia as well as and from Unit IV as well which will really propel the growth like what Swami was mentioning above, Shyam.
Hello? Sorry. I got disconnected.
No issue, no issue, Swami.
The next question is from the line of Nitin Agarwal from IDFC Securities.
Govind, when we look at the business for this quarter especially in the U.S., I mean are there any components of the business which are -- which can be subject to any aggressive erosion as you look at the market going forward?
Okay. Let me take this, Swami. As far as erosion is concerned, impact is less than 5%, Nitin. So we have not seen any aggressive erosion per se. Like I think in fact as Swami was explaining, I think it is a combination of the growth from the base business as well as the new product approval. We'll still continue to grow this particular business apart from whatever has been happening in terms of injectable or in terms of nasal or in terms of OTC. So overall, the growth is absolutely like I think there and we are able to see that. And whatever I think erosion is only to the base business that also is less than 5%, Nitin.
And Govind, there are no pockets of probably products where we're probably making abnormal -- where we would have probably above normal market share of profitability at this point of time which can -- due to lesser competition which can -- or shortages which can erode dramatically?
No. I think only one thing which we will be watching for is like I think I had somebody earlier commented as well, like I think Etrapenem there is already like 1 player has come in from last quarter. There can be one more player who can come in, so that is something which we'll be watching out for. But other than that, we are not, like I think, got a benefit point from a single product per se. Swami, would you like to comment on this?
No. I don't believe there's any immediate threat on that account. As far as Ertapenem is concerned, yes, we have already kind of factored in one of the competitors entering the market. And if you see us certainly in the oral solids business, it's -- the growth is spread out. We have maximum of 6%, 7% contribution per product. So it's spread out, very well spread out. So we believe that it will be stable.
On that point, Swami, if you can probably reflect on how do you -- how have you seen -- have you seen any changes in the oral solids market in the U.S. with the way changes -- with the way some of the competitor action has been? And how -- and what does that really mean for our oral solids portfolio when you look at -- take a 1- to 2-year view of the business?
I don't want to talk about the competitors or what they have done. But all that I can say with regard to our businesses is it is stable and we expect this to continue. We definitely expect some increase in volume and demand for some of the products.
Okay. And so last thing on that, Govind, linked to that, in terms of capacities both for injectables and oral solids, I mean how are we placed on the capacity side of it in terms of our ability to take on this incremental volumes, which are coming through?
As far as oral solid is concerned, we are pretty well positioned. As you are aware of it, Unit X has also been recommissioned and it has capability of adding more modules. So from that perspective, from an finished dosage perspective on the orals, we are not under any pressure. As far as Unit IV is concerned, we still have some headroom. And at an appropriate time, we'll also look at like in terms of some more capacity as additional location as well. But at this juncture, we are not under volume pressure at all.
Okay. And if I can squeeze one last one for me. What is the...
And over and above that I think the U.S. injectable lines also would come in by next year. Is that is right, Swami?
That's correct.
And if I can squeeze one the last one. How do you look at the new product launches for this year?
So we have -- just give me a minute, I think I'll give you the exact number in terms of how many we are awaiting approval, like, I think...
Nitin, we have 40-odd launches over next 9 months.
40 new launches?
Yes. That's a combination of again injectables including Eugia as well as certain orals.
The next question comes from the line of Surya Patra from PhillipCapital.
Sir, just wanted to have a sense from the annual report, if I see, there is a kind of a strong double digit growth in the Auro USA. And -- but the AuroLife is seeing some kind of a decline. So sir, can you give some sense that okay what is the kind of -- whether you are seeing some pressure there in the AuroLife business and -- or you're transferring some of the business from AuroLife to this Auro USA on the orals business front? One.
Govind, I think...
Please go ahead, Swami.
Yes. So the Aurobindo USA business, there's been a surge in demand and then we have seen volume growth. With regard to the AuroLife, there were some restructuring of the government business so there has been a drop in terms of volumes for the government business and the revenues. Then -- it will take some time for us to stabilize in that area. But we believe that sometime soon, we would get back to that path where we are able to supply the government.
Swami, additionally, AuroLife business is also captured in Aurobindo USA as well. Swami, you can throw some light on that as well so that they will get clarity.
So that is correct. So the Aurolife business is also captured in the Aurobindo USA sales. One of the major contributors from AuroLife is the controlled substances. So there is the fluctuations on the controlled substance depending on the FDA approvals. So that is one of the reasons why sometimes the AuroLife's volume also goes down. But otherwise, AuroLife has been steady in supplying some of the products that goes Aurobindo USA. It's mostly on account of the government business and even the changes in the controlled substance products.
Do you see, sir, any this new business opportunity, what it has been contributing last year, even that would be there in the current year? Or do you have any sense about it?
So are you talking about Aurobindo USA's new business opportunities?
Yes. So it has become opportunity going from people vacating or something like that?
You're talking about NBO clusters?
Yes, yes, yes.
With the sum of NBO clusters? It's about NBO, Swami?
Yes. Yes. Any time. The NBO, we cannot say exactly on who is going to let go of some of the products. But if somebody is letting go of some product, we are ready because we have the capacity to manufacture. That's all what I would like to say.
Sir, just on Sandoz thing. So do we have any sense like what is the performance of the targeted [ acquisitions ] and targeted product basket. And since our deal signing, any sense on whether it is fulfilling to your expectation? It is deteriorating? What -- any sense on that?
At this point, we have no reason to believe that there will be any deterioration in the expectations. We are fairly optimistic about what we expected to achieve, and we don't believe at this point there is anything that we can say beyond that.
Okay, just last question, one question on the European market. So again from the annual report, what I am seeing that there is a very strong growth in the Generis portfolio whereas the older acquired asset is delivering a kind of a muted growth number. So what is the outlook here? And if you can also say that, okay, the initial target what we had set for the Watson acquisition in terms of margin that we would be achieving. So now, to what level that we have progressed so far?
Yes. So Generis, Portugal business is only 15% of our business. So that cannot alone contribute the growth. So the growth rate is across many geographies. In fact, Spain, U.K., Italy, Netherlands, even -- apart from our top market of France and Germany, they are doing well. Second question is about the growth rate. We have always maintained that we'll grow double of the market growth rate. So right now, we expect the market growth rate to continue between 0% to 5%. It is all different type of markets. So it is very difficult to consolidate. But still, I would say it is a low single-digit growth rate. And we expect to grow by 8% to 10%. That is what we are saying on the back of new products as well as on growth of existing volume. The third one is about margin, so we continue to make progress on that. Of course, there is some additional cost of serialization, but that is for everybody. And in fact, it is giving opportunity to gain market share because fringe players will be pushed out. So we continue to be in double-digit percentage of earning before tax.
And about integration with -- the manufacturing integration what we are anticipating from the domestic base, on that front, what progress we have seen, sir?
Yes. So actually, this is not the only strategy to improve the gross margins. So we have crossed more than 100 products into India from our earlier acquired businesses. However, now we are having a mix of strategy as I said. We are using Generis manufacturing base to shift some of the low volume products but requiring short lead time to Portugal. And at the same time, there are a number of other in-licensed products where we are continuing to see attraction in terms of margin because of our global supply chain because the API prices are a very key ingredient of formulation price. And considering that we have an eminent position in API manufacturing as well as sourcing in the world, we use this strength to leverage our cost structure.
The next question is from the line of Girish Bakhru from Bank of America.
Just continuing on the Europe side. Sanjeev, the overall top line, will it likely do $900 million guidance as was before in Europe?
In fact, I mean we were talking about USD 1 billion, right, as a target. I mean we are not fixed on the top line. We are more focused on streamlining operations of acquired businesses. At the same time, we are trying to launch the new products through the acquired platform and thereby improve the top line. So -- and of course the gross margin improvement. So I would not commit to that X number. But I think we will be very close to that.
And Apotex would have done, what, EUR 35-odd million or what would be the contribution this quarter?
It is less than that. I mean it will be between EUR 25 million and EUR 30 million.
Okay, okay. And on the Generis side, when you say you will use the manufacturing base, how far are we in terms of utilization of this facility and I mean overall plant to maybe even release capacity on Unit IV from that front?
Unit IV is general injectable. So that is not what Generis has ability to offset. But on Generis plant front, we have made a considerable progress. In fact now, we are utilizing more than 88 -- 80% of the capacity. If you remember when we acquired the Generis operation, it was about just 50%. So we have already got the additional business, and we are using it strategically as I mentioned.
I was actually under the impression that when you increased the injectable business in Europe, the idea was to utilize Generis facility. Is that not correct?
Okay. Let me just recapitulate. Actually, we are talking about existing plant of Generis when we acquired, which is oral solid only. And then we have already acquired our land for the Unit II for injectable, but that is yet to take off, and we think in next 12 months, that capacity will start coming in. So the Generis -- injectable-wise, we are more focusing on the penicillins rather than the general injectables as of now.
Yes, yes. And just moving to U.S. On this product, Makena, hydroxyprogesterone, I just wanted your view, how do you see that as a pertinent opportunity?
So Swami, would you like to comment on that, hydroxyprogesterone?
Yes. Govind, can I -- can you repeat that product, are we talking about the injectable?
Yes. About hydroxyprogesterone?
Yes, okay. So this is a good product and then we have done well. We see a strong growth in this product.
I mean could you comment on the market-size opportunity right now?
It's approximately $230 million at this juncture, Girish.
The next question is from the line of Prakash Agarwal from Axis Capital.
Just trying to understand the gross margins better. So one is clearly the mix which has improved the U.S. sales are higher. But if you look at the last 2 quarters, it had come down, right, and there were one-offs. So could we say that the mix being equal plus/minus, so 57% is the new run rate or the normalized run rate for us going ahead?
Subu, would you like to comment on that?
Me, Govind?
Yes.
Prakash, the gross margin has improved. Yes, you are absolutely right. We had certain one-offs in last -- last year this quarter as well as the last quarter. But we don't have any significant one-offs, very immaterial small one-offs are there. And also the product mix has improved a lot as well as the geographic mix also. Within the geography in U.S. also, the businesses like Acrotech and other businesses have also contributed. So not only did the mix which has improved the gross margins there, the individual business segments also improved it.
Yes. I am trying to understand going forward given the mix is likely to be similar, would this be fair to assume the new normalized gross margin going ahead?
Yes. We always try to achieve around 58% gross margin. Even in couple of conference calls earlier also, we mentioned that our target is always to achieve 58% and then go beyond that only. That's for all internal targets.
Understood. And there was a mention of 40 new launches in the remaining 9 months. What is the expectation in terms of number of ANDA approvals?
As far as ANDA approval, I think we still expect around 20 to 30 products approval are awaiting. So I would say like I think, this number is coming -- I mean correlated to the approvals as well.
Yes. And we would have some few products which had been approved and yet to be launched?
Yes. We have few products like I think which are approved and which are waiting for launch. It will also happen I think along with the particular set of products we talked about.
And to be more precise, 17 products are already approved so which will also get launched.
17?
1-7. Yes.
Okay. And secondly, looking at the U.S. FDA website, particularly Aurobindo, so calendar year YTD, we have seen about 20-plus withdrawals, ANDA withdrawals. So this is to do with the remediation measure or those products not made sense and we have pulled out from the market, if you could throw some color?
Yes. It is not necessarily remediation only, Prakash. We keep evaluating once in a year in terms of whichever products, we have not even -- it doesn't make any sense for us to be in the market. Like example, we have filed certain molecules, long back, we received approval, but number one, like I think did not -- does not make sense for us because it is highly competitive, there are more players in the market or we are not having a product which would really make an impact in the market. Like that, we keep evaluating and pulling out those products. That's how this has been done.
Okay. No, I'm just trying to understand in terms of not supplying and withdrawing the products. So once we withdraw, and if you want to come in the market, do we have to take special approvals or how does it go? And we can just stop supplying also, right?
Yes. So when we are withdrawing, obviously we will not be supplying, Prakash.
No, no. I meant that we can just stop supplying if the market gets so competitive. What is the reason for withdrawal? I mean withdrawal...
Yes. The reason is, I think, please understand the fact that there are -- so as the regulator would expect us to do certain fundamental classifying progressing in terms of all the molecules, in terms of evaluating certain aspects of it. And if we are not even producing the products, it doesn't make sense for us to invest our regulatory as well as technical teams' effort in terms of those molecules. And one of the reasons, it's also like, if I recall, if we are not in the market and we need to additionally invest, therefore it doesn't make sense.
And lastly on the net debt reduction, so a great job done. Just trying to understand, is there a factoring -- increased factoring involved here or it's just largely with the improved working capital only?
The factoring is always for the growth only, Prakash, because when you do the factoring, obviously immediately that money will be given as charge back. So it is not forming part of the business -- regular business actually. So it keeps on going up and down like that, so it is immaterial really.
What is the number, sir, factoring overall number for us?
I need to -- I will get back to you and let me work it out and I'll get back to you.
To answer simply without factoring also we would have reduced the debt, Prakash. The scale could be different, but definitely we would have reduced the debt.
The next question comes from Surajit Pal from Prabhudas Lilladher.
Govind, just continuing with Prakash's question about the 20 product withdrawal. See, what we have seen through these new business opportunities is that there are opportunities suddenly thrown out because of some competitive decision by the competitors. And as a result of it, those surprise themes could come up. So if you withdraw those 20 products, who knows that next 1 year in some of the products are some of the guides have fallen out because of manufacturing or any other reason? And that could throw an opportunity which we could be missing altogether?
Not necessarily because of one simple reason that is we have got a process which is not really like getting competitive or in terms of tedious in terms of the number of stages to produce, even if we get that opportunity and if we need to operate a plant for a much longer period at the API level before the other products can get disturbed, we would still be very careful in terms of taking that opportunity. So there are several levels of evaluation which is done before we take such call of withdrawal, Surajit.
Okay. Because I found is that there are many products which suddenly has come up because something like say Derma product of some of the guys, suddenly it was $10 million product becomes $200 million product in 6 to 8 months. So any...
So my answer is in case if we find an opportunity for us to get back, I think it will not take much time because if there's a demand and if there's a shortage of supply, I think the approval process also would be like expedited.
Okay. Another question is that regarding scenario post-Sandoz, assuming that you will be adding straightaway $900 million, $950 million, whatever the current valuation of the -- of those product. And currently, you have roughly -- for FY '19, you have done even sales of roughly around $1,290 million assuming 10% growth. And over and above, you are adding $950 million. And if I go by what Swami is giving the guidance of 8% to 10% kind of growth in U.S., which is still possible. That means you have to grow 20%, if I'm assuming that 8% to 10% of erosion every year will be happen in the overall portfolio. So do you think this kind of growth could be possible, or do you think that inorganic growth will be the only growth factor for Aurobindo's business?
So I don't think -- go ahead, Swami.
Yes. Let me handle this.
Okay.
I think probably you've not understood the growth that I mentioned. I'm not -- I did not talk about the 8% to 10% growth, number one. Number two, the Sandoz revenue we mentioned when we acquired Sandoz that we expect somewhere around $900 million pre-divestment. So post-divestment, it's going to be obviously not $900 million, so that's what we mentioned. It's not $950 million. So on both counts, I just wanted to do the correction. Number one. All that we are saying is the -- for the products of U.S., we expect fairly stabilized growth. We expect growth, and we expect that there will be stability. So how much exactly it's going to grow, that again depends on one of the question which was raised whether somebody is going to let go off some product, whether we are be able to -- we enter those product. These are all questions we cannot answer. But all that we can say is that we feel confident that there will be stability.
Okay. Last, on this bag line is that vancomycin is still not in the market in U.S. in a big way or in a -- at least sizable way?
Not a big way, not a sizeable way. And I also at this juncture, we have reprioritized because of the need of the other products for same line.
Because what I heard in that vancomycin is a very unstable product, particularly their API. So do you find that the production of the product would be a bit tricky at this point of time?
At this juncture for us I had mentioned, I think the other product is consuming this entire capacity, and we are not like spending enough time in terms of prioritizing that. And whenever we prioritize this, we will figure it out in terms of what we need to do on that product.
Last question to Subu. Subu, what we have seen your -- the overhead cost, which is quite volatile as a matter of fact. So do you think that if I remove the R&D part, what could be your suggested range of your overhead cost?
Surajit, it is not volatile. It has increased in last quarter to this quarter because last quarter, we had the Acrotech commission. I mean started the operations on 1st March and Apotex in the mid of February. So the full 3 quarters impact has not come in these 2 companies, which has come this quarter. So it is not volatile, it is because of the increased business size, the costs have gone up. That's it.But at the end of it, overall if you see, at the end of it, overall, the EBITDA margin has been started improving and everything started moving up.
Right. So what could be your suggested range of that overhead cost?
You should take this because as of now, full quarter impact has come both for Acrotech as well as to Apotex. So you should take this and start with the inflation whatever you put in your model, based on that you have to take it further.
Our next question is from the line of Chirag Dagli from HDFC Mutual Fund.
Sir, the annual report suggests INR 817 crores noncurrent assets for Eugia. Is this all gross block and what sort of asset terms can we expect in this business?
Subu, can you clarify on whether this is gross block or not?
Eugia, we started the operations in the second week of April. So we are in the initial phases. And as, as Krishna mentioned or in the call mentioned, we have just launched 5 products. We are planning to do more than 50 products over a period of time maybe 1 or 2 years. So at this stage, we will not able to give -- whatever number we'll give it will not be representative at this stage.
Subu, the question was, is it a gross block, whatever number you mentioned.
Gross block. It's a gross block. It just started, no.
We have spent INR 817 crores -- so we spent INR 817 crores on the gross block of the oncology? And this is our share, right, Subu?
No, it's not our share.
That is the total, sorry.
That is the total.
And just to put things in perspective versus our current business, ideally, asset terms and margins should be better in this business?
Yes.
Okay. And can you split the depreciation number between depreciation and amortization for the first quarter?
I will give you offline.
The next question is from the line of Nitin Agarwal from IDFC Securities.
My questions have been answered. Thank you.
The next question is from the line of Hari Belawat from Techfin Consultants.
This is regarding with product distribution. Now this is the kind of the [indiscernible] e-pharma company because now they are getting more clearances even and legal clearances I think in India and they are setting up big infrastructure for this. So any tie up with any e-pharma company, particularly that are here now?
I think we are not in the domestic market to tie up with anyone, Hari. We don't have very many finished products -- we don't have any finished dosages India at all to tie up.
Yes, I saw your revenue, domestic is just 8%. How about in the other possible income [indiscernible]
Hari, we are not able to hear you clearly. Whatever 8% domestic is more because of the API sale in the domestic market, Hari. We don't have any domestic finished dosage sale, Hari.
The next question is from the line of Anubhav Aggarwal from Cr?dit Suisse.
Yes, just a clarification on depreciation. So Subu, sir, this increase from INR 187 crores to INR 241 crores, maybe the acquisitions full benefit -- full quarter would have led to it, but was it a component of in lease accounting impact also here?
That lease accounting impact will be around INR 28 crores, Anubhav.
So how would that have boosted our EBITDA, so corresponding effect, EBITDA would be have been boosted by similar amount?
Yes, depreciation has gone up. Correspondingly, EBITDA also will go up. And it is going to be a permanent feature.
Yes. So the -- but total EBITDA impact would have been how much because of lease accounting?
Roughly around INR 25 crores, INR 26 crores, Anubhav. Because something will go into interest also.
Yes, that's what I was saying. So if depreciation has gone up by INR 28 crores, interest would have gone up as well. So shouldn't be -- EBITDA benefit should be -- shouldn't have been higher than INR 25 crores?
That is true. That is true.
Sorry. So is EBITDA benefit more than INR 30 crores or is it still....
No, no, no, it is less than the amortization impact only. And somebody asked me the breakup between depreciation and amortization. It is -- you can take 3:1.
We will move to the next question which is from C. Srihari from PCS Securities.
Firstly on sartans seem to be a backing of the filings with the third-party APIs. So should we presume that it would take some time to get sort it out? And secondly, on the respiratory portfolio, you had 2 ANDA filings last fiscal and 3 are expected this fiscal. So can you please give some kind of indication in terms of what is the total addressable market size, competitive scenario, et cetera?
So as far as sartans is concerned, let me just clarify it to you, I want to clarify that as far as losartan is concerned, that I think we have sourced it from a third party is what I said. As far as the other products are concerned, I said we have filed valsartan CBE-30 and we are awaiting approval, after which I think we will continue with that product is what I mentioned. But sartans...
And this is from existing business units?
So sartans -- yes, it would be from an existing unit until we decide other way, but as of now that is the plan. Okay, long-term we can take different calls as we progress. But currently, I think even if we need to move out also, you need to get to your approval before you start thinking about moving out also.
Okay. And the respiratory portfolio?
On the nasals, we are developing 7 nasal products, the market size is around $1.4 billion. And out of which 2 ANDAs are filed as on date. And these are produced in Unit X. And we have capacity to produce around 1.4 million units per month. Any other queries on the respiratory?
Yes, I mean the annual report is mentioned that you have done 2 filings and 3 are expected in this fiscal, so...
Correct, that's true.
What that would be -- any launch time line that you can indicate?
Yes. Srihari, we are expecting approval for those 2 products which we have already filed.
What is the AMS for that?
Sorry?
Addressable market size for this product?
Addressable market size, Krishna, do you have those 2 products data? We will get back to you on this later.
Okay. And competitive scenario?
I'll get back to you, Srihari, on this competitive scenario.
Your next question is from the line of Nitin Agarwal from IDFC Securities.
Subu, on the debt reduction, sir, do we have -- ex of the Sandoz business, what should be the debt reduction levels -- debt levels we should be looking at for the end of the year?
Nitin, we said in the existing business, we will be targeting to reduce anywhere between $150 million to $200 million. This quarter, it has come to $130 million. The balance, the next quarter will be mostly flat or slightly up or low. So the balance will be achieved in the last quarter. Sandoz, we will deal with that separately as and when it happens.
Sir, any specific reason why the debt reduction, given the fact that our operational performance will pretty much be -- should be little bit consistent through the quarters, why should debt reduction be relatively lower going forward?
No. We said $150 million to $200 million. We are putting every effort to achieve that number. That's it.
See, one request I have is don't measure the rate reduction on a quarter-to-quarter basis is what I would say, Nitin. It is always better to look at on an annualized basis, Nitin, because there are quarters where we would like to suddenly seeing the NGO opportunities, we would like to have more inventory. And that particular quarter, you might feel the net working -- I mean, the working capital would increase to that extent that it may not be reduced in that that quarter. But annualized basis, whatever Subu is going, that is something which we will definitely achieve.
Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Krishna Kiran for closing comments.
Thank you all for joining us on the call. If you have any questions unanswered, please feel free to keep in touch with Investor Relations. The transcript of this call will be uploaded in -- on our website, www.aurobindo.com in due course. Thank you.
Thank you. On behalf of Aurobindo Pharma Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.