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Aurobindo Pharma Ltd
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Ladies and gentlemen, good day, and welcome to the Aurobindo's Pharma Q1 FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Arvind Bothra, Investor Relations. Thanks, and over to you, sir.
Thank you. Good morning, and a warm welcome to our first quarter FY '22 earnings call. I am Arvind Bothra from the Investor Relations team, Aurobindo Pharma Limited. We hope you have received the Q1 FY '22 financials and the press release that we sent out yesterday. The same is also available on our website. With me, we have our senior management team represented by Mr. P.V. Ramprasad Reddy, Chairman, Aurobindo Pharma USA; Mr. N. Govindarajan, Managing Director, Aurobindo Pharma Limited; Mr. Sanjeev Dani, COO and Head, Formulations; Mr. Santhanam Subramanian, CFO; and 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 discuss today are forward-looking, including and without limitation statements relating to the implementation of strategic actions and other affirmations on our future business, business development and commercial performance. While these forward-looking statements exemplify our journey, judgment and future expectations concerning the development of our business, a number of risks, uncertainties and other factors may cause actual development and results to differ 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 will hand over the call to Mr. Santhanam Subramanian for the Q1 FY '22 highlights. Over to you, Subbu.
Thank you, Arvind. Good morning, everyone. I hope that all of you and your families are safe. So while the fight against COVID-19 is ongoing, at Aurobindo, we are committed to ensure the safety of our employees and to ensure business continuity is maintained. However, Q1 FY '22 witnessed an increase in overall [indiscernible] which a result [indiscernible] partial lockdown in various parts of the globe and affected the path to normalization. The quarter performance...
[Operator Instructions] The line of the management is reconnected. Thank you, and over to you, sir.
So we will now discuss the results for the first quarter of the fiscal year FY '22 declared by the company. Please note that we'll be discussing ex Natrol numbers throughout the call. For Q1, the company registered a revenue of INR 5,702 crores, an increase of 2.9% over last year. The EBITDA before ForEx and other income improved by 5.6% year-on-year to INR 1,209 crores. EBITDA margin for the quarter was 21.2%, an improvement of 50 bps over the corresponding previous year. The margins improved on a year-on-year basis despite large [indiscernible] export incentive benefit as well as continued ramp-up in R&D spend during this quarter. This is accounting to almost INR 180 crores. The net profit increased by 8.9% year-on-year to INR 770 crores. In terms of the business breakdown. Formulation business in Q1 FY '22 witnessed a growth of 2.7% year-on-year to INR 4,890 crores and contributed around 85.8% of the total revenue. API business contributed around 14.2% and [indiscernible] revenue of INR 812 crores for the year. For the quarter, the revenue from the U.S. market declined by 1.5% year-on-year to INR 2,681 crores. On a constant currency basis, U.S. revenue marginally increased by 1% year-on-year to USD 364 million. We have received the final approval for 4 ANDAs and launched 5 products in the quarter under revenue. We have filed 8 ANDAs, including 2 injectables during the quarter. Revenue of Aurobindo Pharma USA, the company making the oral products in USA, has decreased by 9% year-on-year for the quarter in U.S. terms. Revenue for [ Aurobindo ], the injectible business, increased by 22% year-on-year to INR 62 million for the quarter, and we hope to see continued growth as hospital footfall improve. We have filed a total of 115 injectable ANDAs as on 30th June '21, out of which 98 which has -- [ received ] a final approval, and the balance, 52, are under review. The company on 30th June '21 has filed 654 ANDAs on a cumulative basis, out of which 451 has the final approval, and 59 [indiscernible] approvals, including 8 ANDAs, which are tentatively approved [indiscernible] and the balance, 174 ANDAs, under review. For the quarter, Formulations earnings dropped at INR 1,583 crores in an increase of 19.7% year-on-year growth. For the quarter, growth markets witnessed a growth of 13.7% to INR 329 crores. The quarter performance was led by strong growth in Brazil and South African business. For the quarter, ARV business stood at INR 296 crores, degrowth of 30.3% year-on-year on a high base of last year. R&D expenditure was INR 358 crores during the quarter, which is 6.3% of the revenue. Net organic CapEx during the quarter is around $64 million. The average ForEx rate of INR 73.61 in June '21 and INR 72.87 in March '21. Net cash and including investments at the end of March -- at the end of June '21 was USD 1.5 million. The average finance cost is 1.1% mainly due to availing multiple currency loans. This is all from our end, and we are happy to take your questions now. Thank you.
[Operator Instructions] The first question is from the line of Anubhav Aggarwal from Credit Suisse.
The first question, you mentioned in the presentation, you bought certain ANDAs and OTC brands. How many you bought and which areas they are in mean? Can you give more details on this? Am I audible?
Yes, yes. Can you repeat the question, Anubhav?
Yes. I was asking that you mentioned about acquiring certain ANDAs and the brands. Can you talk about how many ANDAs and brands you bought in? And what's the revenue contribution? And some more details of the areas they are presented?
Sure. Swami?
Yes, sure. Thank you, Anubhav. So during this quarter, we had purchased about 9 currently marketed OTC brands and 6 ANDAs. As we had articulated in the past on capital allocation, we look at opportunities that are cost beneficial and then -- or to market or for product portfolio expansion.
Hello? Are you able to hear me?
Yes, yes. Yes, typically, we evaluate medium-sized opportunities that can complement our portfolio. And these 9 currently targeted OTC brands are available for renew. And we expect about INR 30 million to INR 35 million in the first 12 months, and we expect to grow these brands.
That's about the OTC brand. So was there any contribution from them in this quarter or they came only in the end of the quarter?
So we got in the middle of the quarter literally and during the transition period, we did not have much contribution during the quarter. But going forward, we expect some contribution on the.
And what about the ANDAs, 6 ANDAs, which areas they are in? And can you give some more details about this?
So there are actually 6 ANDAs and these -- some are ready from marketing and there they are currently marketed. And 1 more ANDA will be launching in due course. These ANDAs, we added close around 30 million annually on these ANDAs.
Okay. And just second question was on the Cronus acquisition. So can you talk about how many products can be commercialized in the next 1 year and the second year from the already 62 products and the 22 which we have filed?
Yes. Anubhav, I'll take this opportunity to talk about the Cronus and give you a total overview for the benefit of the -- to the investors and analysts, right? See, the Cronus company has formed in 2015, '16, and it has been going on. And there's another company by name Cronus LLC also there in U.S. We have subsidiaries U.S. company as on 1st to July '21 to make it 100% subsidiary, right? So the numbers reflected in the press release are reflecting only the statutory numbers. However, if you take the pro forma financials for both the companies, last year, the combined entity on a pro forma basis achieved more than 13 million turnover. And this year, already in the first half of the year, it has achieved more than 6.5 million, and they are pretty confident this will exceed the last year numbers during this year. And if you really go into the -- if you really get into the overview of that, this is -- this company is located in Hyderabad on a 10-acre land, which is a [indiscernible] unit and the plant is constructed from 2.25 lakh square feet. And they are working on multiple business segments. One is the orals and second, injectables. There is a floor for injectables and CMOs, et cetera. Totally, they're already working -- total products as on date is around 67 products. Out of that, if you say, and in pipeline, if you say injectables, it is around 40 and other non-injectable around balance, 27. And they completed the exhibit [ bases ] pertaining to 32 products -- more than 32 products and filing has been completed for 32 products. And they got approved under to the tune of 6 numbers. And this -- the unit is also having a very good R&D facility, et cetera. And to some extent, Aurobindo also supplying some APIs et cetera. We see a lot of good financial -- I mean, going forward, we see a lot of synergies, et cetera, in this company. And the company has been altering investors to the tune of more than $45 million by way of plant and machinery, I mean, intangibles under development, et cetera. And -- I mean, I'm sorry, more than spending around $50 million. Already they are in few states. And we are doing only a primary infusion into the company, thereby increasing our stake to 51%. And we will be having the management control. And we see a lot of growth coming in down the line, 3, 4 years. And even though we are not giving maidens or et cetera, I mean, personally, [ not earnings view ]. It can be another -- I mean another company like Natrol down the line 4, 5 years. Any more question?
Yes. Just one clarity. So after your infusion, what -- so the $50 million is now what number after the infusion?
No. That $50 million, the cash is getting into the system, so it becomes around -- more than $100 million.
But can you also talk about how many products like, say, out of the 6 products, when do we see them being launched in the market?
Yes. This product, 6 products, which are all mostly CMOs and they have been working with multiple guys. And the inspection should have taken place, U.S. inspection, as on March 2020. And because of the COVID, it got deferred, and they are expecting the inspection to take place somewhere by end of this year or early next year. And at such time, the products which have been filed, I mean, as on basis around 22, which will be taken up. And the management is pretty confident going forward, things will look very good.
The next question is from the line of Damayanti Kerai from HSBC Securities & Capital Markets.
I hope I'm audible.
Yes, yes.
Okay. Sir, my question is again on Cronus. So like what is the key rationale that we have looked into animal health business. We used to understand we are very well placed in terms of growth drivers on the pharma side, where we are working on multiple future drivers. So what has really prompted to look you at animal health business? Like what kind of business attractiveness or long-term, I'll say, positive which you have seen for the business?
So if you really see the [indiscernible] market, it is a more than [indiscernible] more than $10 million. And the product with 67 products will amount -- that possible market will be more than -- I mean around $2 billion. And as growing has been mentioning in the past, we have different business segments run by different senior people. And they will be growing the company in their own way. I mean it is not that the entire thing is looked at from the stock alone. So this helps to increase -- I mean increase our revenue share in U.S. market going forward. And there are also mostly in the injectables 40 products in injectables out of the 67, which also will help us to have a firm standing going forward in the animal health portfolio.
Okay. And sir, I just missed like pro forma revenues. You mentioned how much like...
The pro forma financials, the turnover for last year is more than certainly [ $1,200 million ]. And this year, management is very confident they will exceed this. In the first half year, they have already achieved $6.3 million or $6.4 million. This only with the fixed products, outsourcing products. The real manufacturing, the inspection has to take place and all the 67 minus, 61 products have to come into play, which is not [ that as on date ]. Down the line, by '23, I would say, April '23 onwards anytime, the entire manufacturing will start contributing.
Okay. My second question is on what is update on the COVID vaccine front? Last call, you mentioned we'll be starting some stockpiling manufacturing in July. So just if you can update on the COVID vaccine front, please?
Just to recap what we had mentioned in the last call. We have said that the clinical trial was yet to start and the clinical trial is being initiated by [indiscernible], which used to be like called as Covaxin. They got -- we mentioned that we see an opportunity in terms of doing contract manufacturing based on their Taiwan approval. And they've already placed orders for 30 million doses. I think for that, they would pick up based on the approval of Taiwan, which is expected in the next few weeks to a month or so. So based on that, that contract manufacturing will pick up.
And sir, what is the progress on clinical trial front?
I'm sorry, what is the?
On the clinical studies, which are ongoing for the vaccine, what is the current status?
Clinical trial for PPD is already Phase III has started. And as far as the COVID COVAXX -- or rather [indiscernible] vaccine is concerned, I think they are to start their Phase II, III. That, I think, they've already going ahead, have appointed certain CROs as well. They should initiate it in the next few weeks.
The next question is from the line of Ritesh Rathod from Nippon India Mutual Fund.
Can you help us understand the history of Cronus Pharma in terms of how they have grown? Have they done any acquisition? Who are the owners of this Cronus Pharma? And is it a related party transaction?
Yes. So this has started in 2015, and they have been putting a plant and that plant has been constructed near Shamshabad airport, which is a [indiscernible] zone. And we have personally seen the plant also. And it's a very good plant actually. And it's a [indiscernible]. And they were about to get the U.S. inspection last year, March '20. Some of it has not happened due to COVID, and this year it is happening. And -- this has been -- the U.S. business has been run as we are selling and distribution of and which have been merged with this company made as a subsidiary company. And this is the thing. And we have also gone through the prescribed [ study ] guidelines, et cetera, et cetera. This is not a related party, right? However, what we are telling is you is we have taken the precaution to ensure the entire transaction is [indiscernible] plant. And there, we have taken the -- consulted the legal fraternity, everybody.
And are the 66 filings which they have under development, were they organically developed or there were some acquisition they had done in the past for them to [ reach to ]...
Out of 67, as I told, 6 have been bought, and it has been -- they have been using the outsourcing to do that. The [ real 61 ] product, which has been organically developed and they are waiting for the inspection as, I mean, this -- I mean, I'm repeating, we're waiting for the inspection. And out of that is -- 40 is injectables.
And for the second, for the $107 million OTC brands and the ANDAs, which you've acquired as well as this one. Would you need a shareholder approval?
We have -- yes, we are consulted because these are all different transactions, and these are all only ANDAs right? It is within the tolerance -- I mean, it's in the limit, which has been prescribed. And our [ secretary ] as well as we have consulted the expert, and it is not required any shareholder approval.
And even for the [indiscernible] -- this Cronus Pharma, you won't require shareholder?
It is not required.
The next question is from the line of Shyam Srinivasan from Goldman Sachs.
Can you hear me?
Yes.
Can you hear me?
Go ahead, Shyam.
Yes. So yes, I was asking about the global injectable sales. If I look at it, what was the number for the quarter? And if you can also share us, given the kind of -- we have moved things. We are trying to subsidize and make huge [indiscernible] kind of this one, so structure. So can you help us understand where the overall revenues are? I know you have given a guidance in the past, but just to understand on the profitability front as well. Can you help us understand that thing?
Yes. The global injectable number is around 102 million. I mean we'll ensure that next quarter we are entering it is there. And second is we have -- yes, we have been -- we have taken the approvals and we have informed the stock exchanges and the investor community that we are going to subsidize that, and we have already taken necessary actions. We have taken the 1 set of approvals, regulatory approvals, and the second set of regulatory approvals will happen. Hopefully, everything goes well by 30th, 31st August, we will try to complete it.
So was there a [indiscernible] on the profitability, anything that you can share?
Anything? I don't understand, please. Can you -- I do not understand.
What is the profit margins for the global injectables? Is there something that you're sharing at this point in time? How should we look at that business?
See, we are not giving the injectable margin number. And however, we are not inferior to any of the competition or anybody, right? We are not giving any specific numbers.
Shyam, to answer you, the long term, whatever we have projected last quarter, yes, that growth story is still intact.
Okay. So going that, was that like a $650 million, $700 million target for global injectables, correct?
Yes, sir. Correct, sir. Yes, sir. That story is still intact. And that is what is our goal. And that's what we are working towards. This quarter-to-quarter differences may not matter. Like I think we will -- we are still confident about achieving that goal, Shyam.
Second question is on the U.S. oral solids and the U.S. performance as well Q-o-Q decline. So we are comparing like-for-like with 4Q, and I believe, with 1Q. So what -- how are you seeing the theme there in terms of pricing environment, new launch momentum, if you can help us understand?
Swami?
Okay. Yes, I can take this question. Yes. Thanks, Shyam. So we had a slightly tepid growth during the Q1 of current year. We saw some price erosion during the quarter and primarily due to buildup of inventory across supply chain, across suppliers, we would decrease demand. So price erosion was in, I would say, upper single-digit percentage-wise. It is higher than normal. We cannot estimate the duration at this point precisely, but we believe the negative impact would be offset with higher volumes and new launches for the year. As you may know, we are today the largest supplier of their volume, and we plan to keep increasing this as we have a large portfolio.
Yes, Swami, just any launches you would like to call out for the remainder of the year? Or are you sticking to the 30-plus launches, 30, 40-plus launches for the full year?
Yes. We would be 30, 40 [ launches ] -- 30, I would say about 30 [indiscernible].
The next question is from the line of Kunal Randeria from Edelweiss.
Sir, just 1 clarification. Was the management of Cronus or, let's say, the Cronus founder associated with Aurobindo Pharma in the past?
Okay. And so can you repeat the question so that we are clear about what we are answering?
Yes. So was the founder of Cronus Pharma associated with Aurobindo Pharma? Maybe a direct and other subsidiaries or...
So we have dealt with them in the past because in the past, there are transactions we have done. And even today, we continue to do transactions with them on other entities. Does that answer your query?
It does. So -- but as of now, it's not a part of Aurobindo Pharma, right?
It has never been part of Aurobindo Pharma at all.
Ladies and gentlemen, please give us a moment. The line of the management got disconnected.Ladies and gentlemen, we have your -- sorry for the [indiscernible]. We have the management disconnected. Thanks, and over to you.
We sincerely apologize for this call. I mean I think the quality of the call was really pathetic We're really sorry about that. Can you connect the gentleman who was asking the question, madam?
The person is in the line, sir.
Sir, did you get your answer?
Yes, I did that. I did that. And just one more question. Can you look -- you're developing [ pure biosimilars ]? So can you share some time lines because I think you have revealed that you may be filing sometime this year? So what are the time lines please?
So who want to take or you want me to take? Okay. Let me answer that. As far as Europe, their first 2 products are concerned, we have clearly mentioned that those 2 products with an extended Phase I would get filed during this financial year. And 7 months is the typical time line, then you would expect an approval because these are different time lines as far as the first 2 products as far as Europe is concerned. There are -- there is 1 more product and which will get ready, which will get filed by next year, financial year. And you can expect every year 1, 1 product getting added to the portfolio. 1 to 2 products depending on the length of the trial, it would get added. So as far as Europe is concerned, whenever the filing happens in 210 days, you can expect the rule. As far as U.S. is concerned, depending on is it the first set of products or already reviewed product, the time line would be defined. You can take it as an approximately 18 months as a time line, probably 12 to 18 months as a time line for approval in the U.S., depending on the complexity of the product. Does that answer your query, sir?
Yes, sir. Just one more clarification on this. So the first U.S. approval, U.S. filing would be after the European filing, correct?
No. before March, we are filing 1 product. No, 2 products we are filing before March. And in Europe and U.K., first product we are filing next month. This is what -- and subsequent year, we can -- '22, '23, we are expecting to file in U.S. 2 products. That is the thing.
Sure, sir. And [indiscernible] the R&D to go up more?
No. It may be a -- no, it was -- Subbu, any answer?
Yes. See, we are already at 6%, probably with the turnover going up -- I mean the denominator will go up. So probably we may be 5 to 6. But depending upon how we see it, right, it depends upon many factors. While we are very clear about we are going to do the clinical trials, et cetera, how to optimize it, we are working on that.
The next question is from the line of Tushar Manudhane from Motilal Oswal.
So just would like to understand the progress on the PLI scheme, please.
Okay. We have already sought some clarification from the government. Based on the outcome of that, I think we will [ dilate ] the way forward. So we are all geared up for moving forward, but we wanted certain clarifications which we already sought from the government and the project agency.
So the financial outlook would start from, let's say, in FY '22 or FY '23 onwards?
So the financial outlay will start -- even if we start this financial year actual, depending on when we receive the clarification. If you receive the clarification, let's say, and if it is meeting our requirement, the investments can start in the current financial year itself.
Sorry, sorry to drag on this, but can you just elaborate on this clarification? Like any major hurdle on starting this project?
Clarification is in terms of including certain products as part of that. If you take an example of Penicillin G, we also wanted clarification on whether [ subsidies ] would be part of that or not because when we produce CAPA, we need not necessarily isolate Pen G and also [ 7AC ], along with that, I think we wanted the [ 7AC ], which is also like a migration which is happening as a starting material in [indiscernible].
The next question is from the line of Prakash from Axis Capital.
First question is on the U.S. FDA update. If you could give us -- we hear that inspection for one of your facilities have started. Is there an update please?
Okay. Unit 1 was audited by U.S. FDA for 9 days, and the audit got concluded yesterday. There was a 483 issued with 7 procedural observations. And we will be responding as for the prescribed time frame and go ahead, I mean, what would the agency towards moving forward.
And just to clarify, these are the foreign inspectors from the local agency?
This is a foreigner based out of the Delhi office.
Okay. Got it. And secondly, just picking up thoughts on the U.S. pricing pressure that we are seeing. So Q-on-Q, there has been some pressure. So what is this pressure? I mean what we are seeing on the market on a little -- what is changing in the market? I mean we've been growing single digit. We have a very strong portfolio. Pipeline launches are happening. So what are you reading on the market? What has really changed? Or do you think this is more temporary?
Okay. Swami, I'll take this one. I'll take this one. So Prakash, basically, as Swami had explained earlier, our strong belief is that because of the pandemic, people have stocked more material than the need of the consumption. So obviously, we see this as a time period or a phase where everybody has to liquidate the stock, which they built more than whatever is actually needed. We believe -- and there are certain things which are happening currently may not be sustainable. I think so what we are talking about is now the stock is not only with the seller, it is also the distributor. Once these are offloaded, we expect the normalcy to settle in. And we always have maintained that a 5% erosion is something we also budget for. This time, it has been more, as already explained by Swami. So this is a phase, in our opinion, should pass. We are not giving a specific time line because we need to know how much stock is being held by everyone. How much time would it take to get liquidated. That is the reason we are not giving a specific time line. Since we have enough engines for the future after this space is low, we are still confident about the growth.
So this year, we still maintain we'll be able to see growth on the last year's pace?
It depends on the stock liquidation, as I had explained, Prakash, because we don't want to give a general answer, yes, we are confident because in case the liquidation will take some more time, so that some more time will happen. As you are aware of it, that I think we still have a significant portion of our products, I think, which are competitive. As you know, the 60%, 65% of our portfolio is within the top 1, 2 or maximum, 3, in terms of the 1 2 ranking. So obviously, look, I think our story is intact. We are confident. As Swami had explained, like I think the products are awaiting approvals and would be launched. And we are confident about the future. In this phase, we are not able to clearly say that like how long this phase is sustained, but we are absolutely confident about the growth as we progress beyond this space.
Understood. And one more on the rationale or the thought process behind. So we already have a very, very strong pipeline of 174 products under different dosage forms. And we have gone and bought this $100 million asset, which has some OTC and ANDA. So on an overall scheme of things, we are doing before, we are doing complex injectables. We are working on biosimilar vaccine. So these are much larger assets. So I'm just trying to understand the direction of buying such smaller assets A and B, also the veterinary piece coming in. So I mean, what are we signaling, I mean, in terms of filling up the gaps? Do we see more such smaller assets going forward? Or we focus on the larger assets which we are developing organically?
I think we are not talking about one against the other Prakash. We never -- we are not talking that. Number 1 is, as far as the ANDAs are concerned, they are absolutely complementary. See, today in the generic industry, let us be clear about one particular fact. At the time of filing, every product looks like a great product, and that's how every company for every product it is filed. When the time of launch, you are -- you cannot predict like, I think, how many players would be there, how much erosion would happen. And if they're getting an opportunity for a certain portfolio of products, which is going to complement your existing portfolio, you should go for it and that is a strategy which we have adapted in terms of getting those portfolio because tomorrow, like, I think these products also have enough opportunity for their own growth and that was evaluated based on that, we went ahead with that. As far as the veterinary business is concerned. The one part is like you have to remember, most of these APIs, I think, are also coming from our facility. And we clearly see this is a good business to be in. That's how we are going ahead with that. It doesn't mean that when we get into, let's say, newer portfolio, our existing portfolio will dilute or we are focusing on [indiscernible], it doesn't mean that we will...
[Technical Difficulty]Ladies and gentlemen, thank you for patiently [indiscernible]. We sincerely apologize for the disconnection which has happened. We have the management line reconnected back. Thank you, and over to you. Mr. Prakash, please go ahead to questions.
No. So I had a question regarding the rationale of buying these smaller assets. And do we see more of such assets in the future to fill up the gaps, if any?
I think -- I don't think that we have plans [indiscernible] to go and chase anything, Prakash, as far as these smaller assets are -- the smaller opportunities are concerned. As we had articulated in the past about the capital allocation, we are very clear that we are not looking for any large ticket acquisition. But if there's an opportunistic, let's say, [indiscernible] ANDAs available and which can actually complement to our portfolio, then definitely, we will look at that. Even in the future, if anything comes up, we'll look at in either in Europe or U.S., I think we'll definitely look at it. But we would also agree with the fact that you will not get such opportunities very many because as we have a larger portfolio, only that makes sense only we'll be looking at it, not that [indiscernible].
Okay. And last one for Subbu, sir, on the gross margin side. So one is U.S. pricing pressure. The second I picked up is the ARV sales are down. But why gross margins have dropped? So is it a function of raw material and lower sales? Or there is more to it? And what is the outlook base?
No, it is basically the change in the product mix now because in U.S., typically, the average margin will be more than the company average margin. When there is a drop in the state, obviously, the gross margin will get reduced. Having said that, we worked -- we have worked some time, ensured that, overall, as a company, the gross margin and the EBITDA margin is not affected.
Yes. I mean I could see significant cost controls, but the question is on the gross margin outlook, sir. So how do we see this going forward given the U.S. pricing pressure is here to stay?
You're right. But I mean, at this stage, and we need [ to see it explained ], we need to see on the price erosion and the whatever -- the impact. Probably our endeavor will always to ensure that we move towards [ 68 ]. That is what -- we always have the standard at 58 and more towards [ 68 ]. Because of the temporary nature all these price erosion because of the COVID related and other things, we had a small setback, but let's see whether it is a one-off or we'll come to know of it maybe down the line in 2 quarters.
The next question is from the line of Chirag Dagli from DSP Mutual Fund.
Yes. Am I audible?
Yes, Chirag. Go ahead.
Sir, are you seeing more players in your base products, the older generic product? And if you can just broadly split pricing erosion between what you see on the base and some of the larger products, which are slightly less competitive. Is there a marked difference in the high single-digit erosion between these 2 categories?
Okay. Swami, I'll answer this. As far as price erosion is concerned, Chirag, it's not the question of new player entry, that is not the criteria. We have mentioned that is always possible for a few products. But the major criteria, as we have clearly said, is due to that sorting of -- I mean all the players. Because when there is an opportunity, everybody thinks that this is -- this requirement is sustainable, and they always would like to have more material than what is needed. The offloading of that stock is what we are seeing as a major reason.Second is, as you are aware of the [ banks ], as far as any product, we don't depend on a very high level. I think you know that our top 25 products is approximately around 32% in terms of our exposure. So to that extent, that any single product, our dependence is not -- never has been high share, as you're aware of that.
So on Cronus, what you -- so if I heard this correctly, there's a primary infusion that your capital is going to go into the country, correct? So that you're buying out. So point is, what is the use of that capital for Cronus? What are they going to do with that capital? And also, is the debt on the books of Cronus?
Yes, it's a very [ beautiful ] question. I think this is the most relevant question. The money will be introduced as primary and the segment will be with us only, right? And this money will be used to reduce the existing debt. It is a high cost which will be reduced. And second, as we explained, we have to file another 45 products for which we need to pay the filing fees and we need to generate the costs on account of exhibit matters, everything. And this will be totally used for the business purposes in achieving the 67 -- the ANDA approvals. I said they're not going to stop it here, and they will be trying to look at more R&D-related work.
So veterinary ANDA, the filing, there is no ANDA. And the approval will require [indiscernible].
Sorry, sir. What is this point, sir?
Like health care in the general one, we can -- we pay the money initially with the filing of ANDAs. In veterinary, we have to -- at the time of approval, we have to pay 500,000 each ANDA. We require some money there for this product. That's what Subbu is telling.
So these 6 products, also the filing is -- the approval fees have not been paid.
Which one? You said that there are 6 approvals that have already come through for this product, for this company. Those filings here...
Three, this company has developed 3 products is the labeling products. Labeling means they have taken somebody veterinary label, [ LCI ] products. They are selling these 6 products. These 3 products, they already -- they own -- they have developed their own. But in other units, and they filed, they got approved and they have to yet to launch those out of the 6, 2 products, mainly 2 products they have to launch in next month onwards.
Understood, sir.
[indiscernible] third-party units.
Understood. Understood. And can you -- so can you give the exact as on date on this -- on the Cronus books?
I think must be around INR 150 crores or INR 165 crores.
INR 165 crores?
Yes, yes, yes. Because they put the clients in the capital employed as on date, as on 30th June, the capital employed is $50 million.
Right. Of that, INR 165 crores is the debt and the balance will be obviously equity.
Yes, yes, yes.
The next question is from the line of Harith Ahamed from Spark Capital Advisors.
You mentioned that the valuation that was done by PwC on Cronus Pharma. So will you be able to share that with the investors?
No, we need to take the consent -- see, first of all, we need to take the consent of PwC. And second, whether we need to share [indiscernible], we have to go through the process, understand what are all the issues, et cetera. So that is a thing.
So I'm asking because there are certain questions from [ private ] noted on the call as well, regarding the valuation for Cronus. So it will be useful if you can share this with investors.
But any investment they want, they come to our office. We can -- they can read it there. But I don't know Subbu sharing [indiscernible].
Even for -- so also, we do want to be concerned, we need to take it. But the simple logic which I like to present it is the 6 molecules which have been outsourced is already generating a revenue more than $13 million, even though the management is pretty confident and that they are very excited about achieving more than $20 million. And they were talking about achieving more than -- I mean, we want to be [indiscernible] company, we want to be very cautious in telling the guidance or anything. But the management team is pretty excited in achieving more than $100 million in 3 years' time.
Thank you. Ladies and gentlemen, this was the last question for today. We sincerely apologize for the bad connection quality.
Hello?
Yes, sir?
Yes. Are there participants there? I'd like to conclude.
Sure, sir. Please go ahead. The participants are connected.
Good morning, everyone, again. I sincerely apologize for the pathetic quality of call today, and I wish we could do something about it. But if any of your questions remain unanswered, please feel free to reach out to me, and I'll try my best to address them at the earliest. I thank you for your patience and kindness today. Thanks a lot.
Thank you. On behalf of Aurobindo Pharma Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.