Caplin Point Laboratories Ltd
NSE:CAPLIPOINT
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Estee Lauder Companies Inc
NYSE:EL
|
Consumer products
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Church & Dwight Co Inc
NYSE:CHD
|
Consumer products
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
American Express Co
NYSE:AXP
|
Financial Services
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Target Corp
NYSE:TGT
|
Retail
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
| US |
|
Mueller Industries Inc
NYSE:MLI
|
Machinery
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
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 |
1 198
2 121.7
|
| 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.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Estee Lauder Companies Inc
NYSE:EL
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Church & Dwight Co Inc
NYSE:CHD
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
American Express Co
NYSE:AXP
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Target Corp
NYSE:TGT
|
US |
|
|
Walt Disney Co
NYSE:DIS
|
US |
|
|
Mueller Industries Inc
NYSE:MLI
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
Caplin Point Laboratories Ltd
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to the Caplin Point Laboratories Limited Q4 FY '21 Earnings Conference Call hosted by Asian Markets Securities Limited. [Operator Instructions]
Please note that this conference is being recorded. I now hand the conference over to Mr. Shrikant Akolkar from Asian Markets Securities Limited. Thank you, and over to you, sir.
Thank you, Tanvi. Good afternoon, everyone. On behalf of Asian Markets Securities, I would like to welcome you all for 4Q FY '22 Earnings Conference Call of Caplin Point Laboratories Limited. From the management, we have with us Mr. C.C. Paarthipan; the Chairman; Mr. Vivek Partheeban, Chief Operating Officer; Dr. Sridhar Ganesan, Managing Director; Mr. D. Muralidharan, CFO; and Mr. M. Sathya Narayanan, Deputy CFO.
I now hand over the call to Mr. Vivek for his opening remarks. Thank you, and over to you, Vivek.
Thanks, Shrikant. Hello, and good evening, everyone. I'm pleased to welcome you all to our earnings call to discuss our Q4 and FY '22 results. Please note that a copy of our disclosures are available on the Investors section of our website, as well as on the stock exchanges. And also do note that anything said on this call, which reflects our outlook for the future or which could be construed as a forward-looking statement must be reviewed in conjunction with the risks that the company faces.
With that, I hand over the floor to our Chairman, Mr. C.C. Paarthipan for his opening remarks.
Thank you. Good evening, ladies and gentlemen. Welcome you all to the Investors call. At the outset, you are aware that our company has been growing at a healthy click. Cash and cash equivalents stands at INR 694 crores, with a healthy gross margins, EBITDA and PAT. Our CAGR has been at 26% in the last 25 years -- sorry, last 5 years.
Now let me highlight the status of our projects. First, Caplin Steriles Limited where we have Phase 1. We now have 2 lines of Injectable and one Ophthalmic land. The fourth plant, which is our Bag line to be commissioned in the next month, in the sense, it's going to be operational in the next month. We also have Phase 2 where the civil work actually started, and we are likely to complete our PFS commissioning by July 2023. The sixth and seventh line in the form of lyo and liquid injectables will be completed by September or October of 2023.
Coming to our oncology facility, the machineries from Germany for our OSD has already arrived. The civil work is about to be completed in a month or 2, and the project will be ready in 6 months' time from now.
Onco injectable will be commissioned in October or November of 2023. We also have plans to get into OSD, and the construction will start in the near future in the 18 acres land that we have purchased in the industrial estate, which is mixed over Caplin Steriles Limited.
Further, we are all set to buy an API facility in Vizag, and we are planning to go for 2 kilo labs, one for general injectables for the U.S. market and the other one for the onco products for the U.S. market too. Further, our focus is all on the registrations in the bigger geographies such as U.S., Mexico, Brazil, and South America. The status of our U.S. business will be briefed by our COO. We now have plans to enter to the European market and the market study is completed by one of our executives for the relevant products and the agility to join also shortly to complete -- the start stations in Europe.
Another major development is edition market. As you are aware, 63% of the Western product is out of the market now. Keeping that in mind, we have appointed 2 executives who have been working in this part of the world, in CAS market. And both of them are leaving on the 7th of May -- sorry, 17th of May, and we will be in the position to understand what sort of opportunities are available in Russia. [ Arms rest ] dynamics helps arms manufacturer, but again, it also helps for companies which could find an opportunity in adversity. And Caplin also found opportunities in war zones. Hopefully, we may bring some opportunities in the Russian market too.
Our current key priorities are maintain the cash flow to complete the projects without any debt. Number two, manage the OpEx for the next 3 years for the new entities, especially the 3 entities, which I've told you, without any debt, which means the internal accruals will ensure a smooth sailing. Number three is the implementation of SAP, which we just started recently.
COVID war and the war in CAS devastated the life and business in many parts of the world. The path forward to our company may or may not be the road less traveled, which we will decide when we reach the market after registrations. But one major thing that's happening in the business while today is that the larger companies chasing and creating monopoly are near monopoly status in technology and markets. In this context, a midsize company like ours should always chase well the monopolies and create the differentiation. The key differentiators, which we feel are: a, sustainable cash flow to handle the CapEx and OpEx without any debt as I reiterated before; b, projects and operations to be handled receptively by attracting the right talent; c, completion of registration in bigger geographies for increase in our exports like any of the big players in the market. Thank you very much.
[Operator Instructions]
We also had a couple of other remarks, Tanvi, so we will just take another 5 minutes, I think. So from our side -- from my side, I will be giving a little bit on Caplin Steriles business specifically that has to do with the U.S. So despite all the macroeconomic challenges that the whole world has faced, especially such as COVID and the issue in Ukraine and also some of the lockdowns in China, et cetera, we grew revenue by 44%. And in addition to all of this, we also had Line 1 shutdown for almost 4 months last year and Line 2 not being operational because it was not qualified for close to 8 months. So despite all of that, we have almost grown by close to 44%, 45%. I think that is a fairly commendable number.
And if we took away the money that we are spending on filing products, I think we would be very close to breaking even right now. But because of the fact that we expense out of our R&D figures and also expense out our product filing figures, we still have some way to go for breakeven which we feel could happen this year -- this financial year.
Going forward, we have 2 fully functional commercialized vial lines. We also have an Ophthalmic line that we are using specifically for exhibit batches. We also have Pre-Mixed Bag line, like Chairman said, it will be operational from next month onwards, and that will be ready for taking exhibit batches. Basically, in exhibit batches, what you do is the final step before we need to file a product in about 6 to 7 months time.
In terms of number of ANDAs, we have 21 of which 18 are approved and out of that 18, 13 are in Caplin's name. And 15 products are commercial right now for us in the U.S. with the next 2 to be commercialized within July and the last one by the quarter after that. We're also expecting the other 3 approvals to come through within the next 2 to 3 quarters.
Right now, we are on track to file 9 products before the end of this calendar year. And our overall target for this financial year is 12 products, out of these 12 ANDAs, we -- it comprises of 2 products that would come under the complex category, 5 ophthalmics and 2 or 3 Bag products.
Now we have a split of around 70% to 75% of our revenues coming in from product sales on the next 25% to 30% from milestones and profit share. And going forward, we see this number to remain somewhat similar on a higher base, obviously. And when it comes to front-end plans, we have had conversations with the company that we've been discussing with on a -- basically, we have a choice between buy or build, and we are certainly in towards this opportunity that has presented itself where there is a company in the U.S. that is specifically into distribution of injectable products, and it's small enough that we could potentially take a majority in the company. So those discussions are ongoing, and we expect sort of resolution on that in the next 2 quarters.
In Phase II, as Chairman said, we are expecting that to be completed and operational by September of next year, by which time our capacities will be 3x what it is today. Post the expansion, we feel that our capacities are going to be similar to some of the larger Indian inventories. In fact, I would say that apart from the larger Indian inventories, no one else would have seen the types of capacities once our expansion is completed by next year. So obviously, our current hybrid model of filing our own products and also attracting contract manufacturing would continue to remain. And we would also be targeting ex U.S. markets like we are already doing right now.
Today, the reliance is obviously more than 90%, 95% on U.S. markets, but we expect that to scale down slightly in the coming years with our additional capacity being put to use.
As we speak, we are sitting on orders worth of INR 160 crores that we received from our partner that has been forecasted to be completed before end of this financial year. If we consider similar kind of absolute numbers in terms of share and milestone revenues coming in, we have a fairly decent target for this financial year. And if we execute well, I think we will achieve breakeven from the site, which is a good milestone for us to target.
Finally, I would also say that when it comes to audit readiness and automation, in the last 2 to 3 years, we have focused quite a lot of our energy and resources into automating multiple processes and systems of the plant. I would say that when it comes to quality areas and documentation areas, we are at a very high level of automation today. And in the next 18 months, our target is to go as close as possible to being a paperless facility because we feel that when it comes to machines, there's obviously a lot more transparency and trust factor for anyone walking in compared to everything being on manual systems.
With that, I would like to hand over the floor to our CFO for a quick update on the numbers for the last year.
Thank you, Vivek. Good afternoon. Welcome you all for this investors call. I will take a couple of minutes to highlight the financial results of the current year. Actually, a couple of years back, when we assembled in the same call, we had operation about the subsidiaries being coming with -- the market partners coming into our fold.
The forefront of our Chairman bringing them into our old subsidiaries and keeping inventory closer to the customer, and then quick turnaround has helped us in this challenging times. When the other competitors did not have inventory, we had inventory closer to the customer, and if you see, the results are already shown. It has been a very gradual year in the challenging times when the ocean freights have gone up 3 to 4x, availability of vessels were of difficulty, and then the transit time alone getting by more than 50%.
So the strategy to keep the inventory closer to the customer is achieving all the parameters. The sales growth, contribution margin has been brought back to the original levels and even though the expenses have gone up, they're contained as a percentage of the total income and that is reflected in this PAT margin which is 23.6% for the current year. And all the parameters we have gone, as our Chairman has rightly put it earlier, we are one of the cases which is enviable in the market.
The cash flow from operations couple of years back was only INR 43 crores to INR 44 crores. Today, it is close to INR 350 crores. And the cash and cash equivalent of INR 694 crores what we said is the after investment of about INR 91 crores in the CapEx, which is in fact, the projects -- ongoing projects for the CSL [indiscernible] capping onto, advance of surrender and that the [indiscernible] as Chairman has pointed out, we already reached the destination.
So the things have fallen in place, and we are in good shape in terms of taking further optimization in terms of cost and as Chairman was saying, SAP will be a good tool for us to have a holistic view of the entire business across the various subsidiaries, and we'll be having better control on the films as well as on the product realization.
And if there are any questions, we would be too glad to answer that. That's it for me.
Thank you, sir. I think we can open the floor to questions now, please.
[Operator Instructions] The first question is from the line of [ Anika Mittal ] from Invest Research.
My first question is, during last quarter, our inorganic opportunities were fully finalized by March, now this June. So what's the reason driving such delay?
Can I ask our CFO to reply to your question? You asked that...
Yes, I think I will just clarify the line was not very clear. The question was last year -- sorry, last quarter, we had given a recommendation that the inorganic opportunity, which is the API site at Vizag will be completed by March. And now it has been pushed over to June, any reason why? Chairman, could you please clarify?
Yes. See, last year, we were talking of an API facility which is totally a different one. We are about to buy a facility which is from Chennai. And in the last minute, there were some developments. One of the products of that particular foundation of the particular company got registered and they found that it's going to be a very important product for them. In the process, in the last minute then they backed out.
The API facility that I'm talking to you is the recent development, our due diligence for technical, financial and legal have been completed. We are also to buy this one actually, hopefully, in the next month. So these are 2 different facilities. What you mentioned in last year is different from the one which we are planning to acquire now. Am I clear on that?
Okay. Okay. Right. And sir, my next question is what is our growth guidance for the next 2 to 3 years?
Okay. Growth in the sense of percentage of growth?
In the sense, operational as well as financial aspect also.
See the growth, as I told you in the course of my actual discussion, the priority is to go thrust more on the cash flow, which we are 100% sure. Actually, we will focus on the cash flow. We'll continue to maintain the PAT and cash flow the way in which it has been happening for the last 5, 6 years or more.
Now coming to growth, we are sure of actually having a growth of 15% to 20%. It can even exceed which I'm not in a position to tell you now because of 2, 3 reasons. A, COVID, so during COVID, we were not in a position to travel, which you are aware. B, internationally, there are issues in the form of war in Ukraine, this actually -- where it will affect or how it will affect and whom it will affect, we don't know. The third issue, the lockdowns that's happening in China.
So these are the issues which is more of a threat and as you know, treat cannot be predicted. So we can't be -- we will not be in a position to tell you something which may not be practical and then it's better to rather under promise and overachieve. That's why I see it will be in the region of 15% to 20%, please.
Okay. Right. And sir, my next question is from a strategic point of view. Our plan is to enter into Russia. So is there any change in our strategy after this Russia-Ukraine war?
Okay. See, any war has got it's own actually opportunities, which is in disguise in the -- sorry, I mean, the adversities is disguised in the -- either way, opportunity disguise or adversity disguise, like that.
See, there were opportunities, which you've seen many a times in war zone countries and we converted it as an opportunity. The challenges we converted as an opportunity. And life is more about the pattern of things which happen in your life and business. The patterns that happened in our life, mostly we made our money in the toughest part of the world. Be it in the form of the toughest part of Africa or actually in the toughest part of Central America, 5, 6 smaller countries put together, our 90% of the business comes today.
So Russia is an area, as you know well, now there are a lot of issues in the form of not much of medicines available because the market, if you look at it, 63% of Russian market was, in fact, controlled by the Western company. They are not in that country now. Hence there is an opportunity for some of the important injectables, we ourselves have identified some pre-injectables, which not many companies manufacture in India too, except some 1 or 2 big players.
So this has been told to our people who we have appoint them, and they said, there will be a very good opportunity for this type of product. So we are very sure that we'll be in a position to find some opportunity.
As time goes, there is means to repatriate our money from the country.
The next question is from the line of Sachin Kasera from Svan Investments.
Yes. Congrats for a good set of numbers. If you -- could you give us some more details regarding the U.S. in terms of the EBITDA and the PAT for the current year?
Yes. On the gross -- sorry, from the U.S. side, on the gross margin levels, we are very similar to the overall company's numbers, to the parent company's numbers. As discussed during my speech, we are not capitalizing any of our R&D expenditures or the product filing expenditure, which is why our bottom line will get bruised for some more time till our revenue goes up. But when you're looking at gross margins, yes, it is similar to our parent company's numbers.
Sure. And secondly, you have mentioned that you have entered few more markets in the private market this year. So they are all addressable [indiscernible] being addressed through the parent company?
So any market that we are talking about, where mostly it is into injectables, I think we will be doing this through Steriles. Even though we do have an injectable section in our Pondicherry plant, which belongs to Caplin Point, but I think most of these newer markets where we are targeting through -- for injectables or ophthalmics, we might be doing this through Caplin Steriles.
Sure. And what type of targets -- so this year, I think you've grown at 44%, what type of targets are we looking for FY '23, '24 for Caplin Steriles based on the [indiscernible] that we have?
Go ahead.
Yes. On the targets, as I discussed, I think we can expect good numbers this year. The most important thing is there is no debt of orders or anything like that. In fact, we are -- like I said, we are sitting on orders worth INR 160-plus crores as we speak. Now that we have both wirelines up and running, we need to make sure that we execute properly. But if all goes well, we will go very close to achieving breakeven or we will go past breakeven, which is around INR 180 crores to INR 190 crores.
And when you say breakeven, you mean EBITDA or net breakeven?
So at that level, we will go for net breakeven. We will be at net breaking even at that level.
Sure. And how are we funding this CapEx that is ongoing in the Caplin Steriles? Is it from the loan from the parent company?
That's correct. Yes. We have taken a loan. In fact, it has already in progress. We've taken a loan -- we have been given a loan of INR 220 crores over the next 1.5 years, which will be consumed.
And just last question. You have mentioned that the capacity will become 3x post the current expansion. So by when do you expect this enhanced capacity to be fully utilized? And at that point of time, what type of revenue can we expect Caplin Steriles to deliver?
Yes. When it comes to capacity utilization, we are at a stage where it's slightly more difficult to judge because we are doing a balance between exhibit batches and also commercial. But once the new lines come in, I think we will be very, very comfortable, at least for the next 3 to 4 years. We don't foresee us requiring any other -- any further CapEx until '26 and beyond. The public statement that we have made, we continue to stick to that, which is by 2026, we expect this to be a $100 million business. That continues to remain.
I would like to add a little more here. Once we have 7 lines, it will be in the form of 5 buckets, 3 in the solution Injectable area, one Ophthalmic, 1 Bag line, 1 lyophilized and one PFS. And in addition to our own commercials and agreements, this will open up opportunities for contract manufacturing for multinational and other big companies also.
As you know that there are not many companies, especially big company -- even big companies, they are not into injectables in a big way, although they are big in all other areas. So there are hardly 2, 3 facilities with 6 and 7 segments of injectables. So we are very sure that we will be in a position to actually balance the economies of sale still once we complete all this actually in the next year.
Sure. And sir, just last question on this INR 430 crores to INR 450 crores of CapEx, how much has been incurred till date? And how much you plan to spend in the current financial year and next financial year?
I would request the CFO to actually give you this answer.
Yes. As I mentioned during this thing, about INR 91 crores of CapEx, so INR 40 crores in CSL and there is -- and INR 35 crores of CapEx was incurred in outflow, very small amount in the parent company. So out of INR 400 crores, what we talked about, INR 70 crores, INR 80 crores have already been committed in terms of cash. The remaining will get consumed over the next 12 to 18 months time.
[Operator Instructions] The next question is from the line of Hardik Shah from Taurus Mutual Fund.
Congrats on a great set of numbers. My first question is to Vivek, sir, that -- sir, please correct if my understanding is wrong, that today, sir, our U.S. business is negative. But maybe after -- maybe 2 to 3 years, as soon as the U.S. business will start gaining a little bit of size, can we expect our overall margin to move -- EBITDA margin to move in excess of 35%? Because I believe that just if I separate out the U.S. numbers from the total numbers, our Lat Am EBITDA margin will be in excess of 36%.
Yes. So you're absolutely right in that our overall consolidated number does get dragged down a little bit because of the losses at Caplin Steriles. So once breakeven is achieved over there, automatically, you will start to see that move up.
The absolute numbers, of course, we don't have any prediction on that right now. But obviously, you will start to see parent companies numbers go up once the cash flow breakeven and overall net breakeven is achieved in Caplin Steriles, yes.
Sir, what I want a little bit more clarity on is that can we expect continuous, small sequential improvements in EBITDA margin going forward in the next, say, 10, 12 quarters?
Yes. So...
Yes, go ahead. please.
Are you asking for the EBITDA margins? As I told you, we will be in a position to tell you in a holistic way. Every quarter is difficult to predict at this juncture as I told you before, we haven't started actually our journey to the markets. Once we go to the markets, we'll be in a portion to actually tell you what will happen in the next quarter and the following quarter. We will do well. That's what we would like to say. As I told you before, 15% to 20% is a very conservative estimate. And anything that happens actually -- see, once again I would like to reiterate, let me underpromise, if it happens, it will overachieve.
Got it, sir. Got it. Sir, my second question is to the Chairman, sir. Sir, we have outperformed on all parameters except for one thing, sir, which is the dividend payment, sir. So I would like to understand a bit more in detail, sir, how do you intend to create value for investors? And a small follow-up for the CFO, sir, that -- sir, as on today, we have around INR 690 crores of cash. So I think 45% are slightly higher than -- 45% of our network is cash. So sir, this high amount of cash, is it not a big drag on our ROE, sir? Your thoughts on the same would be helpful.
Yes, I would like to answer your question. First, see, the project -- all 3, 4 projects put together, the total amount actually, which is available now, what will happen in the current year? Because so far, we have invested only INR 90 crore as has been told by the CFO. Current year, most of the machineries from Germany and Italy would come. And the next year also, we'll be getting most of these things, which means around INR 300 crores to INR 400 crores actually we'll be deploying in the projects.
And then it's better to actually keep some money, it's always better because we will not be able to understand what will happen actually and when because of the war and other issues. So we would like to actually keep some money for any eventuality. On the contrary, if we -- see, definitely we are doing -- as we have already 100% now -- sorry, yes, 100%, INR 2 actually per share. Don't you feel that is reasonably good actually?
But let us not comment this with the cash which is available and the kitty because one is, as I told you also in person when we met, the most important one actually is the growth in terms of actually medium to long term that can give you enormous actually return on investment. Then 1 or 2 actually dividend. So I look at decrease. Anyway, I would ask my CFO also to answer your question.
Thank you, Chairman. Actually, you are right that the ROP in the current is taking a smaller beating, if you may use the word. But as one of the colleagues was mentioning the other day, in terms of war, we should have watches to fight the war, that's what he was mentioning.
So the shipping extra cash in city for any other option, not only deposit what the Chairman had outlined earlier are all on hand. But we are not keeping our rise on year growth. We are looking for opportunities either organically or inorganically and as they come along, we'll evaluate them and then take necessary steps, albeit that may be -- the ROC what is reported is on par with many of the period is not better. So the perseverance would definitely stay. And then the next 2, 3 years numbers would definitely look better.
And once again, I would like to add one more thing. The priority, I think, would agree with me is growth. Growth comes only when we put your money into projects, not into dividends. Am I right, actually? Because I told you this already when we went up in our factory.
Yes, sir, you are absolutely right. But sir, I just want one more bookkeeping number, if your don't mind, sir. At the best, we'll be spending INR 500 crores, INR 600 crores of cash over the next 2 years. Is that correct, sir?
Sorry, please come again.
Sir, at the best, we'll be spending around INR 600 crores of cash in the next 2 years. Is that correct, sir?
Yes. As I mentioned in the course of my speech, I will tell you also this way. One project, the second phase, as has been told by actually the COO, INR 220 crores, of which INR 90 crore actually is spent, INR 220 crores. And the onco facility also will cost us another INR 120 crores. And the API, which we'll acquire, the cost of acquiring actually is not high, but 2 kilo labs which is U.S. FDA injectables, general injectables, other one for actually onco injectables are again U.S. FDA, that is another INR 100 crores.
Then there is a slight expansion for, what you call, Softgel Capsules, that would cost around INR 15 crore to INR 20 crores. Then OSD, OSD also cost around INR 60 crores to INR 70 crores. What we will do, we won't do it in such a way that we could create issues. We will balance between consolidation and expansion. That's the reason I said 2 years. In 2 years' time, all these which I told you, actually, will be invested.
And we also need to have some cash to take care of the operations. The reason being, in the RoW market, the registration happens faster. In markets such as U.S. or other regulated markets, registration takes a long time. But during this period, there are so many variables which we are not in a position to control.
And for example, if one machine actually is ready and for want of one particular part, the machinery may be also delayed. The same way, some of the raw materials which we have come to know now, of course, since we have actually like 300 to 400 products for the RoW market that don't pose any major issues, but some of the raw materials for want of intermediates or key starting materials, they have not been in a potion to supply.
See, these are the things only as an entrepreneur we understand. That's the reason we would request you to actually look for the long term rather than actually expecting the dividend to go on a higher level pace.
The next question is from the line of Ashish Kacholia from Lucky Investment.
Congratulations on the good second quarter.
Thank you, sir. Thank you very much, sir.
Sir, my question is basically pertaining to our future expansion plans in Mexico and Brazil. What I understand is that these are markets which are tender-driven and hence, may not be very, very good for our margin profile. So anything you would like to share on what will be our business model? Will we be investing in a branded formulation kind of a business in these markets? Or we will be also participating in the tender market?
Coming to Mexico. Most of the market -- of course, branding business we are doing in West Africa, we would like to start in the smaller geographies of Central America, which is easier for us to actually control because one, for example, suppose if you go for ophthalmic product, there will be very few ophthalmologists; if I go for oncology, there will be very few oncologists; if I go for CMS products that will be very few CMS; if I go for a hospital business for injectables, there will be very few private hospitals.
So to start with, once actually the borders are open, 1 or 2 countries have opened. Still there are issues, but we'll have to travel -- for us to travel to this part of the world. So we will do brand marketing in the smaller geographies where we are already there in Central America.
Coming to Mexico, it's a mix of government and private market. We have to actually -- as you rightly said, the government takes 140 to 150 days. The periods are very elongated. So we are working various methodology. Then, if the products are very lucrative, if the profitability is good, then we'll go through some distributors, we'll fund that and we'll get our cash back faster.
Or, if we have to do it actually like on our own, then we will look at actually the amount of profit which we'll be able to generate. Then the second most important one is the private market. The private market in Mexico is something totally different when compared to other countries because this is the only country where you will see the doctors sleeping inside the pharmacy.
So it means any generic that your market is like a brand actually to the patient because it's been prescribed by the doctor who sits in the pharmacy. So the private market is going to be the lucrative one. Only issue, these are the countries where it takes now 12 products, we have already 5, 12 doses. I think only one product we've got it. Hopefully, in the 8 to 9 months, we'll get actually on other 11 products. We'll also file another 20, 30 products parallelly.
We also have certain methodologies where once you buy our API plant, we will give APIs to some of the factories where they are not in a potion to get at a good price and enter into an agreement within entire market products in Mexico. All these things will happen only when we go there and study the market, especially the private market and position ourself in a space where the opportunity is very high, and it's more of a differentiated one. So getting into this type of uncontested player is possible only when you go to the market and understand actually the leverage of the whole thing.
Coming to Brazil. Brazil takes a minimum of 2 years for registration project start and the process. So it will take another 2 years to complete, maybe 2 years, sometimes 2.5 years also to complete the registration. Brazil private market is very difficult because geography is very smooth. The land is very smooth. If we try and do the private market, distribution will be our biggest challenge in Brazil. So we have to focus more on the tender business. But advantage in Brazil, if you can get into injectables and noncore products, the competition is few and far between compared to any other country, one. Number two, we don't see any smaller companies or midsized companies like our size in Brazil, which means we are definitely positioned in a better way once you complete our registration in Brazil.
Is there anything else to answer, Ashish?
Yes. So just to reconfirm, we will not be investing in a formulation business in either Mexico or Brazil. Is that my correct understanding, sir?
Formulation factory, you mean, sir?
Formulation means prescription business where you will be having your representatives...
Yes, prescription business in the bigger geographies we will not be. As you rightly said, we will not be getting into prescription business. That's because any country for that matter, will need bigger CapEx. And when we can find some niche, if we can create the differentiation compared to other Indians and Chinese who are present there, our business model will become a brand. That's what has happened in Central America. As you are aware, today, we are doing well, not because of the size of the brand marketing, but because of the business model differentiation.
So that's the reason, again and again I am telling, we have to make a trip, which will happen any time actually in the next 6 months or after the registration or before the registration. That is the time we will decide how to position ourselves in this particular country.
Mexico is going to be our future target, like U.S. Yes, please?
Are there any restrictions on the travel arrangement as of now? From what I understand, people are traveling Mexico very frequently as of now.
Yes. There is no restriction to Mexico now. We are all set for actually an inspection, U.S. FDA inspection. So the readiness for the U.S. FDA inspection is happening in the company. I would rather prefer to be here and complete the inspection and then make a trip.
The next question is from the line of Alisha Mahawla from Envision Capital.
So just wanted to understand, have you filed for any registrations in Russia?
No. Can I answer to your question, please?
Yes.
The issues that are happening in Russia is more of actually scarcity for many products. As I told you before, 63% of the market in Russia is dominant -- was dominated by the Western companies. And most of them have left. There are even factories which are not in the position to run due to lack of know-how and raw materials, this is what we are going to understand by our friends from Russia and other players and other neighboring CAS countries.
So registration used to be very tough in the previous years, like 2 days to take 2 years and sometimes 3 years. Even for injectable, they used to go for actually, what you call, [indiscernible] status. Now things are getting changed. But the picture is not very clear. That's the reason our executives are leaving on the 17th and they will stay for 30 to 45 days, and they'll give us the clear picture, how long it would take for us to complete the registration or if there is a company which is already listed the product and if they are not in a position to achieve one picture for want of know-how or actually for want of a partnership, or for want of API or something, then probably we will also fit into that space provided we need to understand how we'll be able to repatriate some money to India.
Understood. Sure. Also, as you were speaking earlier with respect to Mexico and Brazil, so we don't expect either of these geographies to start constituting meaningfully before '24 or '25 because we're still awaiting approval registrations and Brazil will take time, et cetera?
Yes. The only thing which I didn't mention in course of actually my answer to the other gentlemen, there are some emergency purchases. Even now like -- my son actually takes care of the business in Central America has gone to Mexico. Yesterday, he told me some few products which we already know, there is a tender called [indiscernible] they already awarded 2 products. And then another 6 products they said, if we are in a position to supply at that price, then they are ready to buy.
So there will be opportunities. We cannot be sustainable, the way in which we are doing in Central America and West Africa. We may get it. During COVID also we got some opportunities for Mexico and Brazil. This will continue for some of them. Earlier it was COVID war, now war in CAS countries, then cold war, so many things are happening now, as you all know well. So we will have opportunities, but we will not be able to predict it when and how and what would be the volume.
Definitely, it will happen, and we will know only when it happens, what is the size of actually the business that we will be in a position to do.
Understood. And are we selling anything in Sri Lanka?
No, no, no, no. Likely, we are not into that country. Because the -- if you look at our business, we are neither in English-speaking countries, foreign which are closer to India.
Sir, the next question I had was with respect to our R&D expenses. What will that be for FY '23?
This I would request actually our CFO to answer please.
Yes. So in terms of absolute numbers, we feel that the R&D expense is going to be similar to the last 2 years. As we get into slightly more complex products, the number of products that we will be working on might reduce a little bit although the complexity and the cost of these products might increase. Having said that, we are also getting into oncology right now. So that is quite fresh as we speak. So in absolute numbers, we feel that it's going to be similar to last year or probably going to be slightly higher than last year. The one thing is the R&D and CapEx, we are pretty much done with any major CapEx and most of it is going to be R&D product expenses from here on.
So in the range of INR 60 crores, INR 65 crores?
I request CFO to give the actual number. I don't know the actual number, sorry.
Current year it is INR 60 crores, and if we put it, it will be hovering around that in terms of revenue expenditure. Our CapEx expenditure, as you said, is almost done and it will be very marginal.
Understood.
There was a small mistake in my answer when I told you about the Sri Lanka. We are not into English-speaking countries except U.S. I should have made it clear, I'm sorry.
Understood. Understood. Just one last question. While over the last one year, we have highlighted that aspiration -- revenue aspiration over the next 5 years. Any aspirational ROE target that we want to reach?
Request the CFO to respond because ROE side, we don't really look at it from an ROE.
[indiscernible] more results soon. Couple of years back when we assembled in this room for the questions, cash flow from operation was a borrowing issue. We had INR 44 crores, one of the worst ever we reported and the gross margins were issued and the OpEx were issued. We guided more the last couple of years, as said through the strategy of the Chairman that we brought all the channel partners into our older subsidiaries that is paying good dividend in the current year and then probably in the years to come.
And as we are in the process of expanding and then investing heavily on CapEx, and as we said, there are some uncertainties in time lines of completing the projects, getting them product registration, getting them commercial and then becoming breakeven and then [indiscernible].
So currently, our [indiscernible] which is pretty good. And the ROE and the ROCE will definitely improve. We have come back normally. As we said, if we are compared ourselves with our peers and we are either on the same level or better off than many of them, which are comparable with our line of activity and turnover.
So a couple of years or more, definitely, it will go up and we'll see whether it will be settled down in terms of gross margin, OpEx and CFO, it will definitely settle down in respect of ROE and ROC in a couple of years from now.
Understood. Just a clarification, we're expecting U.S. FDA inspection soon?
This is something very difficult to say because they may come any time and they may or may not come also, it depends upon their choice. But at the same time, the facility -- the readiness of actually the inspection is the most important thing. We always actually maintain the integrity and the rest of the things in the form of transparency, quality and all other measures now we have to keep it intact. If there is anything to be added, the CEO also will add to it.
Yes. So at this point, obviously, there is a long backlog for the FDA. So while there is no written guideline on which facilities they are going to be prioritizing, from what we understand, the last few inspections have all happened at facilities where there were some sort of a warning letter or any other OAI kind of status.
But as I said, we need to be any time ready. And as this current plan, we haven't had an inspection in the last couple of years. So we might get one or another school of thought is, we've had a very clean record over the last few years. So we might be deprioritized also. So we don't know right now. We're just ready for any inspection that happens.
The next question is from the line of Harshal Patil from Sharekhan.
And sir, just I have 1 or 2 questions. Most of them have been answered. Sir, one was with perspective to the gross margin, equity over the past 2 years -- or 2 quarters, that's Q3 and Q4, it's been like 55%, 56% of level that we've been clocking around. So you see this as a base going ahead for, let's say, '23, '24? And if you could just elaborate a bit on that, how should we look at gross margins?
Yes. As another [indiscernible] also, our margins are at a very acceptable level for us internally. And overall, the bottom line figures is going to go up once the U.S. facility starts to achieve net breakeven. But in the worst case as well, we don't foresee these numbers dragging down from here. We expect these numbers to stay stable or go up from here.
Okay. Got it, sir. And sir, just one more clarification on these things. Sir, probably 2 quarters back or so, we had alluded to some growth guidance ahead and you did kind of spell it out some time back also. For U.S., we are eying about $100 million of top line, let's say, over the next like 4, 5 years. So -- and for the Lat Am revenues also we were expecting it to be doubling over the same period. So sir, should we still stick by that?
Yes. The Lat Am revenue will definitely go up considering the size of the market. For example, out of the 6 countries that we are currently operating in Central America, Guatemala is the biggest populated country, because that's where there is 16 million population, whereas Mexico is 10x of Guatemala and is one away from Guatemala, most of the products that are sold in Mexico is something similar to what is sold actually in Central America. What's the difference? Mexico is a regulated market. So I'm sure over a period of time, the business will go up in Latin America many folds.
The next question is from the line of Naushad Chaudhary from Aditya Birla Sun Life AMC.
Just one balance sheet question. Sir, just wanted to understand in terms of your working capital cycle, if I see a post picking out 2 years back, it is gradually improving from last 2 years. So what is your comment on this from here on? And do you see there is still scope for improvement? And how should we look at in the next 2 to 3 years, your working capital cycle?
I would request the CFO to answer your question, please.
Yes. As you said, 2 things have paid great dividends for us, having inventory closer into the market. So the inventory level of INR 225 crores what we are having today, it will be on the same level to continue. And as we mentioned in the past, so the transit time is elongated as compared to the last couple of years. What used to take 45 to 60 days is taking anywhere between 75 and 90 days today.
So it is -- the inventory -- definitely though the quantum is going up, in terms of number of months, it will not go up very alarmingly. And also closer to the market we have goods, we are able to catch on the opportunities that come by. That is one thing. And the receivables also is closer to 90 days. Our focus is on cash flow. Cash flow will not happen unless we collect the receivables from the customers.
If we have brought it down to 92, 93 days, then it will definitely hover around the same number of days. The quantum may go up here and there, but we will try to maintain the number of days around that level. And as I said, the transit time has also contributed to this reason. By the time we could reach the customer, it's almost 90 days and difficult to contain the receivables grow in 90 days.
The trade payables also. Actually what trade payables we have is about 1 quarter consumption. So that will also help us contain the working capital cycles. And this, in our opinion, barring any major change in the product mix or the market dynamics it will continue for some more time.
Sir, I would like to add one more. As we increase our business in U.S., then, of course, the dynamics will change. In U.S., there is nothing in the form of huge credits. What is important actually is to complete the registration and we need to have the capacity to export the product. And then if you have the capacity, the way in which we said, once we complete the 7 lines, that will also open up CMO opportunities, contract manufacturing opportunities.
When we go for contract manufacturing, there is nothing in the form of that we have to give credit to the people. On the contrary, they will pay money actually upfront also.
Is it enough to satisfy your question, please?
The next question is from the line of Sachin Kasera from Svan Investments.
Yes, sir. You have mentioned about winning a tender of around $21 million. So can you tell which markets we have received this from and what is the type of margins we can expect in this tender business?
The tender business has come from 2 major markets. One is Ecuador and the other one is El Salvador. The silver line in this market is actually the currency, which is dollar. So any war or whatever happens actually will not affect the currency as you know. And on the contrary, this will help us because you know what is the rupee -- dollar to rupee conversion also. The one actually, which has come in the form of INR 13 million, I think, INR 13 million or INR 13.5 million something, this is from Ecuador and the rest has come actually from El Salvador.
Sure. But the margins would be similar to the...
Margins are very good. The only different -- sorry, the only thing I didn't tell you is here in Ecuador, this is for 2 years, El Salvador actually will be for one year, the margins are very good. The margins are low. We don't participate in any tender because that will affect our bottom line, which we know. And the cash flow also we're very -- See, one thing which we always give importance to is the cash flow. If the cash flow gets affected, even if we have extraordinary plants, we will not be able to implement it. And overall margins and the cash flow is always good; otherwise, we will not participate in any business, especially in Central America.
Sure. And you alluded to the fact that the new market that you are in, like Mexico, Chile, Brazil, they are much, much larger than the existing markets. So when can we start seeing some good contribution from these markets and over the next 3 years, what type of revenue contribution you are seeing from these new markets of Brazil, Mexico, Chile?
Yes, we will do good business after 3 years. That is for sure. The amount, in fact, it's very difficult for me to give you a figure. The reason is, as I told you before, the last 2.5 and 3 years almost, I have not been to this part of the world. 2019, I've been traveling in China and when we were about to do something, the COVID came. Then 2 years, we were out of actually traveling.
And we will start traveling maybe in 4, 5 months from now. After that, we'll be in the position to understand what would be the size of the market, where all we are going to position ourselves, where will be in a position to collect our money faster. See, business for the sake of business, of course, top line business is easier to do. But what will happen, then the profit will be, as you know, will only be in the books, not in terms of cash.
So we don't want to do that kind of business. And the same time, anything that we do, as I told in course of my speech, we want to complete not only the CapEx but also the OpEx of future without any working capital or any other date. So it's very difficult to project actually what would be the exact numbers 3 years from now. Because of the various issues that you also know well, 2 years of COVID, now the war started and some of the prices on our economies, countries going bankrupt, which you know very well, I don't have to say.
So we have to be very, very careful in choosing actually our targeted markets and the kind of business that we want to do. All these things no one has to go see, nothing like seeing is believing. See today, I can grow by the words of my own people, but I don't want to leave it to an area in the form of no, it will lead to doing is easy, repairing is difficult.
Yes, we have to depend on the professionals. And in spite of it, we learn to also take care of actually the ground reality at this juncture. The reason being, as I told you again and again, these variables, which has happened in the form of threats and other things, it's not easily predictable. So we have to go and see the markets and take a decision.
Sure. Given the lockdowns in China, will it have any impact in terms of our sourcing?
Lockdowns, what we do, we have not -- we have been exporting formulations from China to South America. This is like any other South America. It's not like an Indian who imports the API and converts the formulation and do it. We haven't faced any issues. So want to happen, maybe 1 or 2 issues in the form of, no, because there are certain friction in the border and other things, getting refunds or getting actually work permits through China may be difficult for Indians, even for that, we have some ideas. We are planning to start something in the borders of China, some small entity which will also generate revenue for the company.
Of course, we will take a decision after visiting this country. And if our people, Indians, go there and take the work permit, they'll take Visa based on their work permit in that country and move to China.
Sure. And lastly, sir, what type of revenue we can expect from this CapEx that you're doing, especially the capacity expansion as well as this oncology reference that you are doing?
Revenue will be good. I would like to convey the message like this. Any company which is of our size, what is important, as you know very well, first is the cash flow. We have seen the cash flow. What's the reason? One of our shareholders wanted actually to be given in the form of more dividend.
So second, we are putting this money in the right projects. If you look at any big company, they will have an injectable plant, they'll have an OSD plant, they have an onco plant; they're also into the bigger geography. That's what we are planning to do also now. So the only thing which we are not able to predict the reason is, all these big companies have gone to these countries much, much earlier. At that point, there was no COVID, there was no war also.
Now, when these 2 things are happening, if you ask me also to predict something, that will be crystal gazing. So I'm sorry to say that we will not be in a position -- we will do extremely well. After 3 years, we will do extremely well. That is for sure. As long as there is no huge wars and other kind of stuff, which is going to affect the mobility of the people. Otherwise, we'll do extremely well.
The reason is if the company of our size can have something which is unique, as you know well, the company is the number 1 unique is the only one. So if you keep that kind of -- any company of our size may not have all the fundamentals which we'll have in the next 3 years. At that point of time, our [indiscernible] will not be as we as a big company. That means a big company can choose and price a product definitely higher than us, which means we will have an edge -- radical edge to price even in tenders.
And when I quote a better price in tender, the only issue which I have to face like other companies, tenders, they don't pay on time. Then I want to go for a model. Some locals who are ready to fund the tender, they will expect some 5% to 10%. So if my profit is more, I pay that one and get my money faster. All these things are possible provided we'll have to make a trip, understand the ground realities in these countries.
The next question is from the line of Chirag Fialoke from RatnaTraya Capital.
Two short questions, sir. One is on the sterile business, could you just confirm...
Sorry, please come again. It's not audible, please.
One is on the Sterile business, the Caplin Steriles, could just confirm the EBITDA and the PBT number for the year that we have closed? Could you provide that to us? Is that possible?
Yes, COO will answer to your question.
I'm not sure if we declared this year the breakdown. CFO, can you please confirm if this is available publicly?
We will be uploading the same in our website. Once the results are out, we will be doing it in our site. We'll be publishing the same in our website.
Okay. No worries if you don't have it. So second question is a clarification question on German service comments. Sir, you mentioned that we'll be targeting between 15% to 20% growth and to be more precise than that is difficult in the current situation. Could you just help us clarify is that 15% to 20% on the overall level or for our stand-alone business other than Sterile?
Overall, overall. I mean, it's overall only.
Overall. Okay. Including...
Which is -- see, today, I am not in a position to give you an absolute statement. I'm telling something which is a relative statement. It may go up. And there is a possibility, not that -- but definitely, the 15% to 20% actually is one which is definitely possible.
The next question is from the line of Alisha Mahawla from Envision Capital Services Private Ltd.
My question has been answered. Thank you.
Thank you very much. In the interest of time, I now hand the conference over to Mr. Vivek Partheeban for closing comments.
Thank you, everyone, for your continued interest in our company and also thanks to Shrikant and your company and also the moderator. Thank you, everyone, for attending our earnings call. Thank you.
Thanks to all the investors and moderators. Thank you. Thank you very much, please. Thank you very much.
Thank you. On behalf of Asian Markets Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.