Cipla Ltd
NSE:CIPLA
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
1 174.4
1 683
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
C
|
C3.ai Inc
NYSE:AI
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
Cipla Ltd
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to the Cipla Q1 FY '22 Earnings Conference Call, hosted by Kotak Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kumar Gaurav from Kotak Securities Limited. Thank you, and over to you, sir.
Good evening, everyone. On behalf of Kotak, I thank the Cipla management team for giving us the opportunity to host their 1Q FY '22 earnings call. From Cipla, we have with us Mr. Umang Vohra, MD and Global CEO; Mr. Kedar Upadhye, Global CFO; and Mr. Naveen Bansal from the Investor Relations team. I now hand over the call to the management team for their opening remarks. Over to you, Naveen.
Thank you, Gaurav. Good evening, and a very warm welcome to Cipla's Quarter 1 FY '22 earnings call. I'm Naveen from the Investor Relations team of Cipla. Let me draw your attention to the time of this call, our discussion will include certain forward-looking statements, which are predictions, projections or other estimates about future events. These estimates reflect management's current expectations of the future performance of the company. Please note that these estimates involve several risks and uncertainties, including the impact of COVID-19 that could cause our actual results to differ materially from what is expressed or implied. Cipla does not undertake any obligation to publicly update any forward-looking statements, whether as a result of new confirmations, future events or otherwise. With that, I would like to request Kedar to take over, please.
Thank you, Naveen. A very good evening to all of you. I hope that all you and your families are safe and well. We appreciate you joining us today for the first quarter earnings call for the fiscal year 2022. I hope you have received the investor presentation that we have posted on the website. Before I come to the quarter, I hope you have had the time to review our recently published integrated annual report for fiscal '21. This is our fourth integrated annual report and reflects our relentless focus on improving transparency, governance and setting based into our disclosure practices. We will also give significant updates on our business reimagination, sustainability and digital transformation journey. Over the last 15 months, Cipla has entered into multiple strategic global collaborations to support the health care ecosystem in the fight against the pandemic and living up to our purpose of caring for life. We continue to stay committed to servicing demand across global markets, monitoring the critical filings, continued portfolio expansion, reserve on cost control, digital engagement along with seamless coordination in our manufacturing, supply chain and distribution.. Coming to this quarter, we are pleased to report another quarter of robust performance with historically the highest reported quarterly revenues with a 27% year-on-year growth. As we have communicated earlier, we have made a conscious effort to sustain a good share of the operating efficiencies on the expense line, which has also helped us deliver sustained EBITDA margin of 24.5% for the quarter. We expect these efficiencies to continue in the coming period as well. The revenue growth for the quarter was driven by sustained momentum in our branded markets of India and South Africa as well as the U.S. and API. As alluded in our prior quarterly interactions, we did experience significant traction in our One India business, led by the strong core portfolio tailwinds in the prescription and trade generics business, along with the support from the COVID portfolio during the second COVID wave in India. Excluding for COVID, the portfolio momentum continues to be on track with solid double-digit grown during the quarter. You would have noticed the elevated inventory levels, which have been a conscious decision on our part to ensure the continuity of supply for our license. This also includes a portion towards the antibody cocktail inventory that we launched in May. We continue to see strong traction in our U.S. revenue run rate, both on a sequential and Y-o-Y business, led by further expansion in the Albuterol share and continued respiratory unlocking. With the addition of Arformoterol in our portfolio, this has helped us offset what we're seeing in the rest of the portfolio. Our profitability for the quarter continues to track well above our full year targets. For the quarter, there is no significant increase in OpEx on a sequential basis. The Y-o-Y increases in line with the core revenue growth and believe that there is a reasonable headroom to drive EBITDA on a full year basis versus fiscal '21. Our free cash generation and operating efficiency continues to drive our net cash position and pretax return on invested capital ratio. This metric now almost 22.1% on a trailing 12-month basis. Coming to the financial performance for the quarter, we'd like to highlight certain specific items, which are subsumed in the reported numbers. At a company level, the contribution of COVID is in the high single digits for the quarter. And after adjusting for this, the revenue growth maintains a strong trajectory of [indiscernible], 5 teams for the company and respective businesses. While there is a low base baked in these numbers, we are happy to see well-diversified growth in the therapy business. Our reported API numbers include a profit share on the commercial supply and API growth partners. For every market, the business was slightly impacted by a timing deferral pertaining to in-country currency allocations for our Middle Eastern supply during the quarter. We are highly optimistic that the issue is getting resolved and as we are speaking, in fact, the initial funding release has happened. As you may be aware that South Africa in the early part of this month went through challenges related to political protests. Our Durban plant operations did not get impacted much other than some marginal damage to equipment and storage items. We had sufficient inventory on hand as per the norm and look forward to starting full scale normal operations of the plant soon and resume supply of all the life-saving medicines. We have been very closely monitoring the progress of our specialty assets, highly valued options to structure this part of our business for a sustainable future. As you are aware we have already received the second complete response letter on IV tramadol, and subsequently concluded a Type A meeting over June, July 2021. In light of these developments and our good accounting practice standpoint, we have taken a onetime impairment of INR 125 crores on our investment in R&D during the quarter. It's categorized as an exceptional item. But a total overall income from operations is INR 5,504 crores. Gross margin after material cost is at 62.4%. The -- across 110 basis point decline on a Y-o-Y basis and that figure includes contribution from relatively low-margin COVID and COVID ancillary products and lower contribution from international markets as well, which was offset partly by onetime profit share in API. However, on a sequential basis, it is almost 200 basis point expansion, driven by the improved mix. Total expenses which include employee costs and other expenses, is INR 2,090 crores, increased by 5% on a sequential basis. Employee cost for the quarter is at INR 887 crores, and that's a function of the increments as well as COVID-linked compassionate relief to employees. Other expenses increased by 2.5% sequentially. Total R&D investment is INR 264 crores. As a percentage of revenue spend on lower owing to the scalable revenues, the absolute trajectory is intact and the portfolio development efforts continue in full swing through the quarter. The reported EBITDA is INR 1,346 crore or 24.5% of sales. Tax charge is INR 284 crore, and the ETR is 28.5%. The higher ETR is a function of the fact that we have taken the charge of the impairment which does not have the [indiscernible]. Profit tax is -- profit after tax is about INR 715 crore. As at 20 June, our long-term rate is USD 138 million towards the U.S. acquisition and South Africa ZAR 720 million for the operational requirements in Cipla South Africa. We also have working capital loans in dollars and rand, which acts natural hedges towards the receivables. Driven by the relentless focus of cash generation and rigor on cost discipline, we continue to be a late cash-positive company. Outstanding derivatives as a hedge for receivables are USD 144 million, ZAR 651 million, AUD 20 million, GBP 7 million and EUR 5 million. We also hit a certain portion of our export revenues. To close with a strong tailwind across portfolio and geographies for Q1, growth levers in the subsequent quarter will include continued market beating growth across branded and consumer businesses, lower traction in our respiratory franchise across Albuterol and Arformoterol sustaining and driving expansive operating profitability and pretax ROIC, reinvesting the incremental free cash flow into suitable growth in opportunities. With that, I would like to invite Umang to present the business and operational performance. Thank you.
Thank you, Kedar. I would like to wish all of you and your families -- I'm sorry, I would like to wish all of you and your families good health and well being. Amid the looming threat of a third COVID-19 wave in India, our top most priority is supporting the government efforts on increasing availability of our COVID and other life-saving products. Our teams have been working relentlessly to ensure supply continuity for the entire COVID portfolio. We have also conducted large-scale COVID vaccination drives for our employees, depot associates and families. We've also initiated a compassionate relief policy to the bereaved families of deceased colleagues to stand by them and support them in these moments of grief. Coming to the strategic updates and operational performance. In FY '21, we laid the foundation of our strategic reimagination journey, led by the digital transformation of our value chain, including stakeholder engagement, R&D manufacturing, supply chain and business functions. I'm pleased to see the continued deliveries are reflected in the robust performance for the quarter, driven by branded markets of India and South Africa and the continued unlocking of our respiratory franchise in the U.S. Last year, we redefined our earnings trajectory, both in terms of absolute and EBITDA margins at over 22%. Our EBITDA margins for this quarter came in at 24.5%, in line with our commitment to maintaining this trajectory in the current year as well. Our endeavor will be to closely match the operating profitability in the coming quarters despite significant moderation to the contribution of COVID versus last year. In India, our One-India strategy continues to see seamless execution. The One-India business grew 68% year-on-year, driven by traction in core therapies, along with a contribution from the COVID products during the second wave. Adjusting for the core COVID portfolio, the revenue growth was still 47% over quarter 1 of last year. While the impact of COVID-19 will continue to play out in line with the spread of infections and the results of the vaccination drive, we continue to witness strong volumes across core therapies, which is likely to sustain over the coming quarters. The prescription business continued the market-leading performance during the quarter, driven by the strong volume growth in core therapies and support from existing and new introductions in the portfolio. Our acute and respiratory nebulization businesses have also recovered well. As per IQVIA MAT June 2021, we continue to deliver market beating growth against the IPM. We grew at 20% versus the 14% growth of the IPM. On the therapy side, our MAT growth versus broader market for respiratory is 14% versus the 4%, anti-infective is 10% versus 9%, anti-diabetic is 11% versus 9%, derma is 13% versus 12% and cardiac is 10% versus 15%. Gastro is 13% versus the 17%. And urology, we're slightly degrowing versus the market. Cipla consistently ranked #2 with a market share of 8.2% in chronic therapies and grew by 16% versus the market growth of 12% as per the MAT June '21. We intend to maintain the market-leading momentum in the coming quarter and ensure serviceability across our portfolio. The generics business delivered a strong growth adjusted for product transfers to CHL. The quarter witnessed healthy order flow across regions, benefiting from strong demand tailwinds across the core portfolio and the COVID and the other products that were linked with COVID sales. Our consumer health business reported healthy revenue for the quarter led by growth in organic anchor brands as well as continued traction in all of the 6 consumer brands transferred in FY '21 from the generic business. Coming to our North America business, we are happy to report that we have entered the top 10 generic companies in the U.S. by prescriptions, driven by the respiratory franchise as well as the strong limited competition launches over the last 2 to 3 years. Our portfolio efforts on selection and execution have limited the impact of price erosion on our portfolio, and we hope to continue this momentum and scale up as new launches come in. The U.S. generic core formulation sales for the quarter were USD 141 million with a growth of 5% over a high Q1 FY '21 base, which included Albuterol. It's also in line with the sequential ramp-up despite incremental competition in select product categories. The Albuterol share has also ramped up and today, Kedar has already covered the market share that we have in the external reported numbers. I'm also delighted to see the continued unlocking of the portfolio with the launch of Arformoterol during the quarter. Our contracted shares for Arformoterol look extremely well. And we are working with the channel towards achieving our fair share of maintaining adequate supplies. Our focus in '22 will continue to deliver complex launches along with driving growth in the institutional channel, which will accelerate in FY '23, which we expect to be a big year of launches. On Advair, we are working with the FDA and responding to the queries and we'll continue to share the updates on the progress of the file. We continue to work with the FDA on the observations on the Goa plant. We recorded the plans with the required infrastructure to facilitate any virtual audit in case the agency requests one. Coming to SAGA, which includes South Africa, sub-Saharan Africa and CGA, the overall region reported a robust revenue growth of 13% in U.S. dollar terms. Our South Africa private business reported a 7% growth over last year for the quarter. In secondary terms, we continued to maintain market-beating growth of 7.6% versus the 5.7% as per IQVIA MAT. We continue to maintain the third position with a market share of 6.6% in the OTC and 7.1% in the overall private market. The Sub-Saharan business also witnessed strong demand in markets impacted by COVID-19 as compared to the previous year. Coming to international markets, it includes our emerging markets in Europe business. The Europe business and the emerging market business was impacted by issues of timing deferrals that Kedar mentioned in his commentary. We are optimistic that this issue will get resolved, and subsequent billings shall happen in this quarter. The API business reported a growth of 69% in U.S. dollar terms and includes the profit share of the commercial supply from the API to a partner. Turning now to our outlook. We look forward to building this strong start to FY '22. The underlying momentum of our growth drivers for the portfolio continues to be robust across markets. We will allocate capital to enhance enriching our capabilities across portfolio and digital technology platforms to enable that patient care continued. Our near-term priorities include a continued execution on the demand levers in the chronic and acute therapies, improving the ramp-up productivity across branded and generic markets of India and South Africa. Active advancement on innovative consumer-centric products to accelerate the augmentation of our global consumer wellness franchise across India and South Africa. Continue to lead the respiratory categories such as for Albuterol and for Arformoterol and strengthen and accelerate our leadership aspirations. Maximizing the value opportunity in the U.S. complex generic space with launch momentum and with facilities always in compliance and control. And continued vision on cost and cash management, operating margins and return on capital employed. I would like to thank you for your attention and will request the moderator to open the session for Q&A.
[Operator Instructions] The first question is from the line of Neha from JPMorgan Chase.
My first question is on the U.S. business. We have seen a fair bit of momentum in Albuterol market share over the last few quarters, I'm not even looking at this quarter, but over the last few quarters. But our U.S. business has been sort of range bound in the $135 million to $140 million, even this quarter, $131 million. Is the core portfolio seeing higher-than-anticipated erosion? And when do you see the next inflection in the U.S. business in your view?
Neha, I think the portfolio actually has done quite well overall. We've grown it to this level. And I think the new launches will take this higher. The big year for launches is next year for us. We have a few launches coming this year, which will improve the trajectory further. But the next material shift will probably happen after a few quarters.
Okay. More in the FY '23 time frame?
Around that time at all because all the -- we're expecting launches of some of the big products then.
Understood. And Kedar, on the operating cost, despite the second wave and lockdown, it seems like we did see some increase in operating costs quarter-on-quarter despite the restrictions. How should we look at this cost from the current level that you reported in the first quarter? As things have opened up completely, should we see acceleration of SG&A spend in the India business and other branded markets going ahead?
Yes. So Neha, there are certain elements in the operating costs, which are quite responsive to revenue. So with some commissions, some data fees and all that. So I think that will respond to the revenue growth, which we have seen very high this quarter. So part of the increase is towards those variable costs and balance is something where activity was there in the market. So a large part of our sales force is operating in the market. The operations and the manufacturing plants, depots and all the offices is continuing. So while most of the office space is work from home, everything else is having a physical operation. So that's going on. In addition, there is an increase in R&D as well, which is subsumed in OpEx.
Understood. So what I'm understanding other than the fact that these are numbers that are linked to revenue, most other costs is at a normalized level in this quarter?
Yes, that's correct. And maybe I think sequential quarter comparison is probably more appropriate comparison, and we continue to believe that we have been able to retain some efficiencies that we realized last year.
Understood. And one other question, if I can squeeze it in. In terms of the R&D costs, you said that the absolute number should maintain the trajectory that we are seeing. So on an absolute basis, will the spend this year to be similar to what we've been doing in this quarter or more like FY '20, which also included some costs from that year?
It will be somewhere in between and that will be a function of how the trials get initiated. So Neha, it will be somewhere in between.
The next question is from the line of Nithya Bala from Bernstein.
So my question is on some of the complex products that you're expecting approvals for in FY '23. So Advair's example, or Advair, for example, will these require a prior approval inspection by the FDA? And if that is the case, do you have any visibility on when that might happen? Or is that likely to prove to be a bottleneck?
We -- for the sites that are -- our belief is for the sites that are clear, I don't think there will be GMP inspections required, and there might be PAI inspections that could happen virtually. But for sites like Goa, which is -- there probably a prior approval is required.
Specifically for a vaccine, would that require a prior approval inspection? This is a typical inspection? Or has -- have you any indication from FDA that they would be okay with their virtual inspection?
We -- that's something that we have to get more guidance.
Okay. Got that. Second one is on India. Umang, you had mentioned that removing COVID tests you take the base portfolio actually grew at 47%. Would that include the benefit that your base portfolio got from COVID, for example, [indiscernible] or a [ AbbVie ] or other anti-infective brands as well? So does this 47% includes the benefit from those COVID therapeutics?
Yes, partially. It does.
The next question is from the line of Anubhav Aggarwal from Crédit Suisse.
Guys, am I audible properly?
Yes.
Yes, Anubhav.
Great. First question was on the cash position. So we already have about $200 million cash, which is more or likely double next year versus in the...
Sorry, Anubhav, we have missing you a bit.
Hello? Is this better?
Yes, this is better. This is better.
Okay. So I was talking about the cash position because it is $400 million right now. And with conservative estimates that will at least double next year to $800 million. So in the past, you talked about expanding consumer health care business, et cetera, going for inorganic initiative there also. So what -- I just wanted to understand what are the 1 or 2 things top of your mind in terms of different businesses you have, if you're looking for inorganic opportunities, like is consumer health care that's outside India right now? Or what was the second priority there?
See, actually, there is some debt on the balance sheet. So I think some of those debt permitting obligations do exist. There may have to be some payments towards some of the stocking which we have done and not paid, and dividend, which we have enhanced. I mean, several -- I mean 2, 3 years back, we used to be around INR 2 per share, we increased it to INR 3, then INR 4, then INR 5. So the dividend, et cetera, will get paid. But you are right, I think the cash buildup is likely to happen. And while organic CapEx may be higher in selected areas like respiratory APIs or oncology APIs, et cetera, there might be some sterile capacity announcements that we have to do. We will be left with a sizable gap. And all the possible value-enhancing initiatives are open, Anubhav. And that might include acquisitions, that might include other strategic uses of cash. Specifically, the targets which do often get evaluated are around India branded markets, South Africa branded markets and consumer health as well. I mean, potentially, anything which has a longer term is a candidate and in the unbranded generics, which is U.S., Europe or other markets, I think capacity -- niche capacity is a target. So it's difficult to give with precise -- with precision, which target will work out and which will not. But I think the catchment area is meaningful enough. The idea is to pursue value-enhancing initiatives.
And second question will be on the complex launches. So we always see generic launches from you guys. But for the remaining of fiscal '22, how many launches you're expecting, which is categorized in the category of complex launches?
Sorry, what was the question there?
On the complex launches in the U.S. So we have already seen the generic Brovana being launched right now.
Correct.
But for the remaining part of the year, how many complex launches are you expecting?
Umang, you want to take the question?
Yes. Anubhav, we are not disclosing exact numbers. I think there is -- there are a few. And I think we will wait to launch before giving the details there.
And Umang, just one clarity on this generic Advair. So last quarter also, you mentioned that you're responding to FDA. In terms of response, when do you guys think that you will go back to FDA with the complete response of the queries which you have?
I think this month.
The next question is from the line of Nitin Agarwal from DAM Capital.
Umang, just to sort of clarify one of the earlier comments about the EBITDA margin sustainability. So we had 24.5% EBITDA margins for the quarter. So is it -- is it understanding right that for the year, are we expecting to maintain margins around these levels despite the COVID impact now sitting there in the numbers?
No, I understand where you're coming from. We are saying that we will maintain our trajectory versus the last year despite the last year having COVID, right? So there might be a quarter where COVID may have taken our margin to 24% or 25%. But net of that, we will continue to maintain our trajectory at the 22.5%, 23% that we have guided quarter-on-quarter.
Got it. That's. Secondly, on the India sales. Now obviously, April, May were huge sales for the industry and especially for people like you've done a phenomenal job in servicing the demand. Now assuming there is no major fresh outbreak of Wave 3, which comes through, how should one think about India sales for the industry and for ourselves for the balance 9 months?
I don't -- I'm not sure that I can give you a way to look at it. What I can say is that minus COVID, the market should show the 10% to 12% growth. With COVID, obviously, the COVID product sales take over. So I think doctor visits have resumed, more or less people are going. So I think the 10%, 12% growth in the market is possible minus the COVID impact. So last year had loss of COVID quarters as well. So if you take out COVID core product portfolio should probably show that amount of growth for the industry.
And we should continue to outpace the market growth as we've done in the last several quarters now?
Yes. We are hoping to do that, but I think the market should come. So it's -- at the same time, I have to say, it's very difficult to predict when a wave will come or not, right? And also, there will be a shift in what gets used in every wave. So I think that is also going to make a change.
If I can squeeze in a last one. In the recent annual report, you had mentioned about a peptide in-licensing strategy, peptide products. So -- and there was one NDA also that we filled up. So can you just probably -- we haven't discussed much of this in the past around the peptide portfolio. Any -- can you throw some light on that please?
Well, we have about 3 peptides now in our portfolio. And peptide as an API is -- it's a pretty specialized game. So we've got an in-licensing strategy where we worked with some peptide -- some peptide companies that delivers the API. And we -- I mean, just like everyone else, there's a lot of characterization, et cetera, that is needed in a peptide product. So we've -- we're working on these 3, and I think we had alluded to filing one.
The next question is from the line of Kunal Randeria from Edelweiss.
On first on ABRAXANE. So I believe the first generics could enter the market in March '22. So would you be also entering at that point in time? Or would you come maybe a few months later?
No, I think this is a settlement agreement that the innovator has signed. So I cannot give any information on this. But I don't -- I would not be surprised if the person who enters first has got some level of exclusivity in the market.
Right. Sure, sure. Second question is on antibody cocktail. It seems to be getting increasing traction from the medical community in the developed world as a means to prevent COVID infection. So I'm just wondering what your thoughts are on its potential in India? And what are your commercialization plans?
So I think India, the antibody cocktail, I think, as a therapy in terms of data that's available to us now, both for prophylaxis internationally, available in terms of prophylaxis as well as both vaccinated and unvaccinated people who are getting COVID outside of India are being administered this cocktail if they do need -- if they need it. And remember, the cocktail is only approved for mild-to-moderate conditions. So I think the use outside is significantly higher today, many fold compared to what the use in India is. And I think this market needs to be -- I personally think for somebody who's not been vaccinated or who has had just one shot, but has unfortunately got COVID, I think the antibody cocktail has a very -- has a fair amount of utility, especially if the patient is very high risk, right? Has another co-morbidity or is high in age. So we have seen a lot of data in India, where this has been administered to people and they have -- and even several old people, and they have had good results after the administration of the cocktail. So I think it's really a function of the medical community agreeing with this. And it will -- over time, we've seen that the numbers are growing of people who are administering it and actually even patients who are asking for it, asking for it as an option from a doctor and then the doctor decides whether they are eligible for it or not. So I think it's not something which is a created market. It's not a remdesivir, but it will still take some time to create. But I think we stay positive based on the scientific data that we've seen on the cocktail.
Sure, it's fair to understand that it could potentially have a longer tail?
That is correct. That is correct. And considering even the vaccination status in India, I think that this -- I mean the tail could be longer, but I also think the product may have more utility over a longer period of time as well.
The next question is from the line of Sameer from Morgan Stanley.
Umang, just on the margins. If I see the pattern over the last 5 quarters, for example. So first 3 quarters last year had about 23%, 24% and certainly dipped to 17% end of Q4. And now that you are guiding for 22.5% to 23%, I was just wondering, the one down quarter, and that kind of the full average. So just your thoughts on this?
Actually, Sameer, Kedar will probably add more color. So just to stand a little corrected. I think quarter 4 for us seasonally is the weakest quarter. And it's across. I mean the U.S. pretty much stays where it is. But I think if you look at India sales, if you look at the sales in emerging markets, it is actually our weakest spot, right? And it's seasonal. It's not any other factor. So when I mentioned '22, '23, what I was trying to guide to was that we will try and match the previous year and try to be higher than the previous year quarters minus COVID. So our base portfolio will deliver that much, right? But in quarter 4, if there is a reverse seasonality, I think the margins fall on account of that. It's not for any other reason. So I think product mix and margins fall in that quarter. So we will hope to do better than the previous quarters for sure in our core business without COVID. But I can't predict the COVID base and how they will work. So for example, quarter 1 of the previous year had no COVID with relatively no COVID sales. But quarter 2 of the previous year had very high COVID sales. But in quarter 2, it's unlikely that we'll have COVID sales to the same amount in this quarter, but we will -- we are quite confident that our core business will beat last year's core business in this quarter and quite significantly. So that's how we are planning the quarter. So every endeavor is to beat last year's core business profitability, which we believe was in the range of 21% to 22% most quarters rather than quarter 4, where there were seasonality reduces our margins. And therefore, in quarter 4 also, we tried to beat last year. We may not be at '21, '22. But average for the full year, we will come in at that level.
Okay, Umang. This is very helpful. And just on this Q1, there were 2 big one-off items, if I can -- and one was the onetime profit share on API versus INR 125 crores, I think you've mentioned on write-off on [indiscernible]. So if I just offset one versus the other, then -- would you say that your INR 715 crores net profit is the core underlying profit for the quarter?
Maybe Kedar can answer that.
Yes, yes. So I think on a PAT basis, one can offset that, Sameer. But I mean, there is a growth, which is linked to COVID. So that's something which we won't be able to predict going forward.
Got It. Got it. So that's a third adjustment. Got it. Got it. Okay. Okay. And just one last question from my side, and that's on the India pricing environment. And anything that you can share how was Q1, which I think is when a lot of price increase happened in the outlook for fiscal '22 for India pricing?
Yes Sameer, I mean we didn't understand your question. You're referring to the Y-o-Y price increase?
That is correct. The price increases that you would take for India portfolio? So what's the outlook for this year? And how was the Q1?
Yes. So that's all regulated, as you know. I think we do have almost 30% and upwards of the portfolio under DPCO of the prescription business. And that follows the [indiscernible] patent, which was miniscule this year. And the balance one, I think we -- our attempt is to see to what extent price increase gets absorbed in the market, and then we do take price increases.
But would you say that for that 70%, 3% to 4% increase is what is normal, and that's what you would your take for fiscal '22?
Yes. Actually, it comprises several buckets, Sameer. I think one bucket is injectable where actually we don't take price dips. And there's another bucket which is highly competitive and we make a call not to be competitive. So I think there are 2, 3 buckets and there is surely 1 bucket where the pricing window is available. And then we go to the take what is allowed by the regulation.
Next question is from the line of Harith Ahamed from Spark Capital Advisors.
Last quarter, you had indicated your plans to initiate the clinical trials for a couple of new products this year. So are we on track for this? And have you initiated this already?
Kedar?
We are in the process of initiation. We have not initiated, but I think the prework is going on.
For both the products?
Yes.
And on Avenue Therapeutics, you've taken an impairment this quarter. So does it mean that we will not be exercising the option to acquire the remainder of the company?
Yes, I guess so. We are not executing that option. I think the impairment is a function of the fact that it's a listed company, and the investment we submit mark-to-market at any quarter end. So appropriate discount has been applied and the impairment has been taken. But at this stage, it's not definitive, whether we're going ahead or not. So that is still on.
Okay. And last one on trade generics business. Last year, we had a very strong growth for this segment. We talked about the growth of around 18% Y-o-Y. So what are the trends you're seeing for this business currently? And then what's the contribution from trade generics towards One-India business for the quarter approximately?
See, that continues in the same mode. If you take the COVID uplift away from the prescription business. So on a normalized basis, the proportion of trade generics to overall one is fairly in the same range, which it was. And the tailwinds do exist in this business. Even in this quarter, I've seen very healthy growth, and we believe that will continue.
The next question is from the line of Prakash from Axis Capital.
I just missed the India growth breakup. So are you breaking down into ex-COVID and generics growth, please?
No, what we've said, Prakash, is if you take the direct COVID products out, I think the One-India growth is 47%, vis-à-vis 68%, which we have reported. And the split of that into 3, we are not giving at this stage, but all 3 have grown in very healthy -- at very healthy percentages.
But would it be fair to say RX would be higher given the low base last year Or?
Not necessarily. I mean, all 3 businesses have grown with very healthy percentages.
Okay. Got it. And on capacity and the CapEx. So capacity-wise, what is our capacity utilization currently? And with the U.S. maybe coming in the next 6, 12 months, how do we see this capacity ramping up? And what would be our CapEx requirement for this year and next year?
So the CapEx is in the zone of INR 700 crores to INR 900 crores on a normalized basis, unless we choose to enhance, let's say, some greenfield for respiratory API or in the existing slots. So that will be additional. But on a normalized basis, I think you could expect us to spend about INR 700 crores to INR 900 crores. And work on capacity for new launches is ongoing for the last 1.5 to 2 years, in fact. So more API formulations, the work is ongoing and at selected plants, be it Indore and/or other places, I think -- with the respect to product gate launch capacity should not be a constraint.
And what would be our current capacity utilization?
This varies plant by plant. I don't want to give it to you. It varies side-by-side and unit-by-unit. So tough for me to give you one number, Prakash.
But this INR 700 crore to INR 900 crore is like what? Largely maintenance with some add-on, how do we think about this? I mean are you adding some more blocks?
No. Actually, one theme -- that's an interesting question. I think one theme which is emerging, and that's contributing to this CapEx is digitization. So I think we are on a very ambitious automation program across all of our manufacturing facilities. And these sensors or other technologies that could get deployed, I think that work is going on. So that is something which is as a mix of the CapEx is going up from this year. It was smaller to the extent last year. But I think this year onwards, that component is going up. But it's partly maintained from growth CapEx, but not necessarily in terms of new greenfields.
The next question is from the line of Vishal Manchanda from Nirmal Bang.
Could you give us a guidance on R&D spend as a percentage of sales, how it would look in FY '23?
Vishal, our R&D spend is a function of the portfolio and the activity, okay? So based upon certain high-spend activities like clinical trials, based upon which quarter or which year they fall into, I think the overall percentage of sales would get determined, but that's the corollary. I think we don't have a percentage of sales budget. What we try to do is as long as the product has some business, I think we initiate and continue the development. So that's tough to give you, but over the long term, I have seen, I think, kind of scale up, which we are seeing on the revenue line. I think anything up to 7% should be enough to point to.
Okay. And just one more. Just a clarification on the profit contribution that you have booked as part of the API sales. So will this not recur in subsequent quarters?
Yes. I mean it's for the quarter. So we have received that share for the quarter. Unlikely it will be at that level in the balance of quarters.
It will be slightly lower? And...
Significantly lower. It will get more moderated to a great extent.
The next question is from the line of Surajit Pal from Prabhudas Lilladher.
You have guided that you would be -- in India formulation will be beating the IPM. Could you please give some idea? I mean, I can understand the IPM, what could be your idea of IPM growth? And what would be your growth in that area, If you give some basic lesson on that?
Kedar?
Yes. Yes. So Suji, I think Umang clarified that. I think what you said is on a normalized basis, you could expect IPM to be between 10% to 12% on a non-COVID basis. But I think the whole thing is becoming a bit muddled to take COVID out of the -- what we call as the extended COVID products out. I think there is a last set of products, which do benefit from the COVID. So let's see how does this evolve on a month-to-month, quarter-to-quarter basis, but we do hope that we'll be able to outperform the IPM.
Okay. And in U.S., when could we expect that the typical range which we are seeing of lately $141 million, $145 million per quarter, when could we expect that range could be crossed and getting into a new horizon?
See, that will be a function of a meaningful launch. And I think let's see how does the coming 3 quarters go and how does the next year go. But that will be a function of a large meaningful launch.
But any guidance when we will see that barrier to be broken?
Surajit, not at this stage. I think let's take it as the way it comes.
The next question is from the line of Surya Patra from PhillipCapital.
First question is that on the COVID side, you say that this antibody cocktail that we are still not, I think, part of the common treatment protocol for COVID. Any specific reason for this whether it is because of the availability is limited and that's why it has not been part of the common treatment protocol? And also if you can just add something on the Moderna vaccine opportunity, what it is and talked in the media and the approvals that also that we have seen?
Yes. See the work is on. I mean there's no statement on why it's not. The work is on, and let's see how it pans out in the coming days. But on the availability, there is no constraint at this stage. I think the awareness among the doctor community continues to be high. And we do hope that wherever it's required, I think it gets picked up on the market. So that's on the cocktail. On the Moderna vaccine, we have spoken in the past that there is no commercial arrangement in place. And our arrangement for facilitating the importation was only for the vaccines.
Okay. Okay. My second question is on the potential benefit that we can get out of the kind of top 10 positioning that we have achieved in terms of prescription generation in the U.S. expecting a kind of a late entrant that market. We have now achieved a kind of sizable position in terms of prescription generation. So given our specialty product portfolio and all this inhalation product pipeline and all that, can you give some sense how would you be capitalizing this achievement for your subsequent pipeline and hence, better growth, qualitative growth in the U.S.?
No, I think you have seen over the years a bigger basket of portfolio, I mean, reputation and credibility for a sound supply chain, and customer relationships always help. So all these factors come together along with your ability to launch on time, I think that is obviously, some of the fundamentals that is very exciting. And in that sense, I think this helps us.
Okay. Okay. But you have no specific question like, okay, the pipeline, what you're billing that would be meaningfully benefited? Or it is just a facilitation or something? Or you think that even much demanded products like Revlimid, which is going to be there in the portfolio, which like this will really be complemented significantly? Do you see those kind of scenario margin?
No, very interesting question. And there are aspects of synergy, which is inherent in portfolio, in supply chain, in customer relationships and let's say, ability to launch on day 1. So all of those come together. And obviously, every factor would support our business trajectory.
Okay. Just one clarification, Kedar. So or -- rather 2 clarifications. One is on the global consumer business front. So what is the profitability of that business or whether they are getting to breakeven? Or if not, then when do you think that can be achieved? And secondly, on the depreciation side, see, last few quarters, almost 8, 9 quarters that it has been flat, although there is some or other kind of capital that has been continuing. So any specific reason at least to clarification?
Okay. So consumer business comprises the India and South Africa. South Africa is a very healthy and profitable business. The Indian part is incubation, but we do hope that we achieve breakeven soon enough. So I wouldn't want to tell you whether this quarter or this year, but the target is to get to a breakeven scenario soon enough on that. So that's on the consumer business. And your second question was on depreciation. I think that line includes amortization as well. So I think what is happening is there's an interplay of depreciation and amortization in that line. In fact, that some of the acquired intangibles are running from the useful life. I think that gets over in the last couple of years maybe. So that must be what's happening. But I can check and come back.
The next question is from the line of [indiscernible] from Choice Investment Equities.
Hello. Am I audible?
Some background noise, but we can hear you.
Yes. Congratulations on a good set of numbers. I just wanted to understand that the North America sales, the recorded good sales. [indiscernible] I just wanted to understand the [indiscernible], whether we're able to take a price target or not and what market share are we expecting?
Yes, Albuterol has -- the overall generic Albuterol market is a large market. And there is a meaningful headroom for us to grow even on the current base. I think that's where we are targeting. It will be tough to give you a specific target in terms of market share, but you're seeing the traction every month over the last 14, 15 months we have launched the product, and that would be realized.
Okay. And sir, you spoke on the new launches in the next year in North America region. So just wanted to understand how much percentage of the sales would be the new launches?
[indiscernible]
I think it's extremely difficult because of the timing and everything else.
Okay. And on the India business, I just wanted to know like how much percent of the branded business would be -- branded portfolio would be helping that business?
That would be upwards of 70%, 75% or so.
Ladies and gentlemen, we'll take the last question from the line of Krishnendu Saha from Quantum Asset Management.
Kedar, just once again. Sorry. Am I audible?
Yes, yes. Audible.
I thought it was coming too muffled. may I request that you speak through the hand set.
Hello?
Yes, Go ahead.
Just to get an understanding of the margin. Sorry to come back to the margins again. If I look at the revenue just sort of quarter-on-quarter basis, it's just because of the COVID the Indian business is doing well. Beside that because API a little bit probably in every region is static or flattish. So what I'm trying to understand that the EBITDA margin and with the cost in manpower and materials as a shape up of 1.5%, 1%. So going just to understand the EBITDA margin a little bit more. If -- do we see one, the costs be contained at the absolute level as business right now to the EBITDA level? And what happens if the COVID revenue starts falling in the next 2 quarters. So how does it look? Just I know you said this, 22%, 25% -- 23% margin is what you're going to get. But this can you -- is it because of a lot being driven by cost or there's a lot being driven by revenue, is a lot of it because of that and will the cost come back, that's what I'm trying to understand?
Okay., I'll give you 2, 3 pointers to help you understand how it will evolve. So firstly, the gross mark up of COVID products, we have seen usually lower than the overall coming reported gross margin, okay? So that will determine how much will be the gross margin going forward. The OpEx concludes the portion which is linked to sales. So there are some wins and other discounts and some of taker, which are linked to sales. So I think to the extent, sales move up or down. I think that portion of the OpEx would change. And R&D is dispensary based upon the progress of respect to article. So I think that's how the P&L would get shaped up, which they do. But I think like what we must clarify that our attempt is to -- despite not having as much COVID as last year, our attempt is to meet or exceed what we reported for the last year.
Sure. And just a last question on the Pravana point because I got some kind like you got an 11% market share. Do you think it's going to be a meaningful going ahead to [indiscernible] ?
Yes, yes, it will be. it will be.
The contracted market share, by the way, is far higher than what gets reported obviously because there's a lag effect, but it is an important product.
And probably, what is the market share? Could you give us for that? Is it possible?
I mean, healthy double digits, I can't give you the exact fair share.
We just have more than fair share in the market.
I now hand the conference over to the management for closing comments.
Thank you. Thank you so much, everyone, for joining us on the earnings call today. In case we have any follow-on questions, you can reach out to us right to us at investor relations at a later time. Wishing all of you a great evening ahead. Thank you so much and stay safe.
Thank you very much. On behalf of Kotak Securities Limited, that concludes today's conference. Thank you all for joining. You may now disconnect your lines.