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Cipla Ltd
Earnings Call Analysis
Q2-2025 Analysis
Cipla Ltd
Cipla Limited reported a solid quarter with a revenue of INR 7,051 crores, reflecting a 9% year-on-year growth. This growth was primarily driven by the company’s core markets, which include India, North America, South Africa, and EMEU (Europe, Middle East, and North Africa). Notably, the EBITDA margin reached an impressive 26.7%, marking the highest quarterly EBITDA margin in the company's history, up by 70 basis points year-on-year, fueled by an improved product mix.
The performance in Cipla's One India business showed a slower seasonal growth, particularly in the acute category due to a decline in anti-infective market growth, which decreased from over 12% to 4.9%. Despite this, the Branded Prescription business significantly outperformed, with chronic therapy growth rates showing promising figures: respiratory sales increased by 9%, cardiac by 11%, and urology by 15%. The company is optimistic about a rebound as the respiratory season typically begins in Q3, attributing a strong growth trajectory to anticipated market recovery.
Cipla is actively investing in its operational capabilities, expanding its field force to a total of 8,700 personnel to enhance market presence. During this quarter, Cipla introduced significant sole-branded products, with three new brands surpassing INR 100 crores in revenue, further solidifying its position in the market.
The company acknowledged challenges in its Trade Generics business, which is currently experiencing slower growth compared to previous periods, impacted by seasonality. Moreover, there are ongoing supply issues with Lanreotide, a critical product, potentially leading to lower sales in Q3 compared to Q2. However, Cipla projects a recovery in the fourth quarter as these issues are addressed.
Cipla’s Consumer Health business demonstrated a robust growth rate exceeding 20%. This segment's performance is driven by key brands like Nicotex and Omnigel, which maintain strong market positions. Additionally, the South African market saw significant growth, with the private market experiencing an 8.6% increase, underlining the ongoing expansion and influence of Cipla in the region.
Looking ahead, Cipla has maintained its EBITDA margin guidance for the financial year at 24.5% to 25.5%. The company is focusing on commercializing new product launches, with particular emphasis on the North American market to drive revenue. For investors, Cipla’s efforts to improve production capacities and maintain a healthy cash position—reporting a net cash equivalent balance of INR 7,950 crores—signal robust liquidity for strategic investments and shareholder returns.
Cipla is diligently working through its regulatory challenges, particularly concerning the Goa facility, which recently faced FDA scrutiny with six 483 observations. The resolution of these issues remains a top priority, as the company strengthens compliance measures and seeks necessary approvals to expedite product launches, including the generic Advair anticipated in FY '26.
Cipla's management has expressed a commitment to returning capital to shareholders, indicating a focus on maintaining a dividend payout ratio of approximately 30%. Discussions regarding potential share buybacks are ongoing, coupled with scouting for strategic acquisition opportunities to bolster growth, especially in the Indian and U.S. markets.
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Ladies and gentlemen, good day, and welcome to the Cipla Limited Q2 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Ms. Diksha Maheshwari from the Lead Investor Relations team. Thank you, and over to you, ma'am.
Thank you, Rayo. Good afternoon, and a very warm welcome to Cipla's Q2 FY '25 Earnings Call. I'm Diksha Maheshwari from the Investor Relations team at Cipla.
Let me draw your attention to the fact that on 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 for the future performance of the company. Please note that these estimates involve several risks and uncertainties 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. I hope you have received the investor presentation that we have posted on our website.
I would like to request Umang to take over.
Thank you, Diksha. Good afternoon to all of you. We appreciate you joining us today for our second quarter earnings call.
This quarter, we yet again delivered a strong profitability. The reported EBITDA margin stood at 26.7% for the quarter, which is our highest ever quarterly EBITDA margin that's reported by Cipla. Growth in EBITDA outpaced top line growth of 9% year-on-year, which was primarily impacted due to a changed seasonal pattern.
I would now like to start with the updates on our key markets. Our One India business witnessed a slow seasonal growth, especially in the acute category. In anti-infectives, one of our largest therapies, the market growth came at 4.9% as against the last year growth of over 12% as per IQVIA MAT September '24. This impacted both our Branded Prescription as well as the Trade Generics business.
On an overall basis, One India growth stood at 5% year-on-year. Our endeavor is to outpace the market growth on a full-year basis. With the revival in the season and the respiratory uptick starting in quarter 3 of this year, you should revert back to our growth trajectory. While we are showing slower growth, we have continued to invest both in field force and investments in the field. Our number of people on the field has now reached 8,700 people.
During the quarter, our Branded Prescription business continued to outpace market growth in chronic therapies; respiratory grew by 9%, cardiac grew by 11% and urology by 15%. Our share of chronic also improved to 61.5% as per IQVIA MAT September '24.
Performance of our big brands was one of the key highlights for this quarter. In our Branded Prescription business, we have added 3 new brands in the category of revenue of over INR 100 crores. We now have a total of 25 brands in this category, along with 21 brands in top 300 as per IQVIA MAT September '24.
Cipla continues to be the largest pharma company in terms of volume, and the only player with 2 billion unit sales in IPM as per the MAT September '24.
In our Trade Generics business, the business is impacted by the season. However, we expect it to revert to the usual growth trajectory in the coming quarters. Our Consumer Health business witnessed strong traction with anchor and transitioned brands continuing to grow bigger. The business posted a robust growth of 20% plus. Anchor brands of Nicotex, Omnigel and Cipladine maintained their leadership position in their segments. The business is focused on driving a very healthy secondary growth and tries to look for opportunities to invest in products and channels to strengthen the distribution network. The operating profitability of our business is consistent at 15%.
In North America, we delivered a quarterly revenue of $237 million. Barring a temporary supply issue in Lanreotide, the sustenance in revenue has been supported by continued positive traction in our differentiated portfolio. Albuterol further enhanced its market share to 19% in this quarter. The Lanreotide franchise consisting of 505(b)(2) and ANDA assets reached the market share of 35% during the quarter as per IQVIA MAT '24.
Currently, we are facing some supply challenges in Lanreotide, and hence, we expect the quarter 3 Lanreotide franchise sales to be lower than quarter 2. However, these issues are anticipated to be resolved by the end of quarter 3, and starting quarter 4 '25, we should be able to recover sharply in the Lanreotide franchise. We're also working to increase the overall capacity of Lanreotide in -- through CapEx investment made by our partner. During this quarter, we also received 4 new generic drug approvals including one peptide in the U.S. market.
Progressing on our journey of strengthening the Africa story, we now have merged the North Africa business, which was part of EMU with the SAGA region and renamed it as One Africa. Our overall One Africa business recorded a vigorous growth of 22%, with South Africa also delivering a similar growth in local currency terms.
In the private market, our secondary growth was at a healthy 8.6% versus the market growth of 0.5%. Our South Africa private market now ranks #2 in the market with the Prescription business maintaining its #1 position. North Africa also demonstrated a strong growth during this quarter.
In EMEU, our deep market strategy has started paying off with the business delivering a solid growth of 18% in U.S. dollar terms, with a pickup in both our DTM and B2B categories.
I will now cover some of the issues regarding the regulatory inspections. Resolution of our regulatory issues remains our top priority. Our Goa facility recently underwent reinspection by the U.S. FDA. The facility was issued six 483 observations. We are still waiting for the classification of the inspection.
At Indore, our focus remains on remediation and implementation of the CAPA.
Derisking of generic Advair, our major inhalation asset, has been progressing as per expectations. We expect to launch this asset in the half 1 of FY '26.
For generic Abraxane, while we are more likely to launch it from our Goa facility, this may require approval for the facility impacting the timeline of the launch. We have continued with our efforts to derisk the product through the CMO side.
On the sustainability front, we have had some good progress. During the quarter, Cipla achieved a ranking with the S&P Dow Jones Sustainability Index, and the score has improved to 79 from 70 that was there in the previous year.
To summarize the overall company outlook, we are on track to achieve our margin guidance for the year, that is between 24.5% to 25.5%. Last 12 months have been audit-heavy with our facilities of InvaGen, Kurkumbh, Patalganga, China and Goa, audited. All these facilities have been -- have cared with either a VAI or NAI except for Goa, where the classification is still awaited. In Lanreotide, we are in the process of resolving our supply issues. Our Trade Generics business, the model change has been successfully implemented, and we now have a better control on the channel.
With this, I would now like to turn the call over to Ashish for the financial and the operating performance.
Thank you, Umang. Just coming to the key highlights of the quarter. And please note that the growth percentages that I'm going to talk about are all adjusted for QCIL, the divestment that we did last year in quarter 3. We reported a quarterly revenue of INR 7,051 crores, with a growth of 9%, driven by our core businesses of India, North America, South Africa as well as EMEU.
The EBITDA margin, excluding other income, stood at impressive 26.7% for the quarter, up by about 70 basis points Y-o-Y and 111 basis points Q-o-Q basis. The reported gross margin after material costs stood at 67.6% for the quarter, which is 159 basis points above last year's figures, mainly driven by overall better mix. Total expenses for the quarter include employee expense as well as other expenses that stood at INR 2,882 crores. The employee expenses includes our strategic investments, which Umang also mentioned in the India Branded prescription business via field force, especially on the chronic therapies. Between FY '23 and half 1 FY '25, we have added almost 1,500-plus feet on ground.
As highlighted earlier, we have also introduced retail task force in India Trade Generic business, a team of almost 500-plus feet on the ground for better visibility and control over business, leading to improved customer relationship. These investments will help us meeting our long-term organizational growth goals.
Increase in other expenses is on account of new launches in India Branded Prescription business, with an investment towards that. It also includes commencement of our plant operations in China, which is expected to start supplies in this financial year itself and investment in our MDI facility in Fall River for finding new products and derisking some of our existing pipeline.
R&D investments for the quarter are at INR 385 crores or 5.5% of the revenue, driven by product filings cost and developmental efforts, higher in the quarter by 2% versus last year.
Our profit after tax for the quarter is at INR 1,303 crores or about 18.5% of sales, with effective tax rate at 27%. Our free cash generation and operating efficiency continues to drive healthy net cash position. As at September 2024, debt on our balance sheet, including the lease liabilities, stood at INR 461 crores with net cash equivalent balance of INR 7,950 crores. This quarter, we had paid out a dividend of INR 1,000-plus crores.
Now I'll conclude with key focus areas and growth levers in the subsequent quarters. The priority for One India would be to continue to grow ahead of the market in Branded Prescription and accelerating the growth trajectory in Trade Generics while further working on solidification of the growth levers for wellness portfolio, including ramping up in new launches.
In North America, our focus would be on commercial execution, expediting the launches from our U.S. facilities and resolving the supply issues that we talked about. Derisking key launches for FY '25 remains one of our key priorities.
In South Africa, our continued focus stays at margin expansion in EMEU. Our top priority is to maximize top line with focus on deepening our penetration in identified core markets while sustaining the strong margin trajectory. Our ROIC for the quarter on an annualized basis was 30% plus. And like Umang said, our EBITDA guidance remains unchanged at 24.5% to 25.5%.
I'd like to thank you for your attention and would like to hand over now to the moderator for Q&A.
[Operator Instructions] The first question is from Damayanti Kerai from HSBC.
My first question is on Abraxane opportunity. So obviously, I think we are waiting for Goa clearance for this particular product. But can you comment in case we don't hear back favorably from the U.S. FDA regarding classification, et cetera, how far this product can be pushed in terms of launch in the market? If I remember correctly, earlier you said this launch could possibly come in second half of FY '25. So what is recent thoughts on this product?
Yes, I think it depends on the clearance of Goa, right? And I think from the time of the clearance, the clock starts pretty much for this product. So it's -- from a timeline perspective, this is the fastest possible way.
Okay. In case Goa takes slightly longer, then you proceed with the CMO route, then how long, I guess, we have to wait?
No. So the CMO route is going to take much longer. That it will have to be filed as a supplement. So that will -- that is definitely over a year.
Okay. Okay. My second question is on the supply issues, which you mentioned on Lanreotide. Is it purely the capacity constraint or there are some other issues? And are you remaining confident about resolving this in a quarter and then supplies going back to the normal level? And then a quick question on the 4 approvals, which you've got during the quarter. So I believe one is the peptide product, calcitonin. So do you have a manufacturing capability for that particular product or it will be again done through CMO?
So most calcitonin-salmon is likely from a CMO because the source of the API itself is different. So yes, I mean, that -- we are not doing it. It's being done through a partner. So that's on calcitonin.
Okay. And on Lanreotide issue?
So Lanreotide is -- I think there are 2 things that are happening. One is, as we are expanding capacity, we've got to reconfigure -- the partner has to reconfigure the lines. I think some part of it is that. Some part of it is also that there was -- there is more demand than we anticipated. So I think it's a mixture of both. So it's capacity creation plus also maybe maintenance at the site because of which this quarter is down. I think we are confident that quarter 4 onwards we are good with this.
Sure. And you mentioned you are investing in the partner side for capacity expansion. Or how is the arrangement there?
No, our partner is investing. The partner is investing. It is their site.
Okay. My last question on India business. So again, I guess, we expect to see better seasonality in 3Q. So are you seeing like initial sign of better pickup in the respiratory for third quarter and that's why you believe you could still outpace market growth in the full-year basis because 3Q -- after 3Q, I believe, fourth quarter is generally a lean quarter, right?
That is correct. That is correct. And I think we are likely -- so the seasonal triggers for respiratory, the pollen alerts, the pollution environment typically starts after Diwali. So we are beginning to see some of that rising, but hoping that -- I don't know how we will see the season, but we are hopeful that at this particular time of the year we'll mimic the other. Unlike the acute season, this is not solely a seasonal trigger. It is also the impact of pollution in the air. It is also an impact of allergens and pollen.
The next question is from Anubhav Agarwal from UBS.
Just continuing on the question on Lanreotide, I'm just trying to reconfirm that at your partner, there is no external constraint because of which the supply has been impacted because for European partner, supply was impacted in the June quarter. Now you faced constraints in September, and your guiding for the December quarter also being impacted. So first, it sounds strange that partner is expanding that's why 9 months of total capacity being out and severe shortage in Europe and you're also facing shorter. So confirming that there is no external dependency for the partner, it is just because they were expanding that's why they are facing so much shortage.
So I think what we can confirm to you Anubhav is that the issue is not a supply chain related issue in terms of material or anything. The issue is linked completely to the partner's production.
And Umang, how do you get confidence that this will come back to full normal level...
Because we visited. Because our teams have visited, they made an assessment, and we are on regular calls with the partner. So we have our confidence in that.
And what will be the impact for you guys? For example, $237 million revenues, this -- would it go down by, let's say, about -- below $225 million for next quarter? Just as a sensitivity, what kind of impact will it be for Cipla...
Yes. I mean we are going to see a fairly reduced number on lanreo for quarter 3, and I think, yes, it could be lower than the $220 million mark. Depending on how quickly we get supply back, we could be looking at something in -- lower than $220 million.
And just one more clarity, in this quarter, was the generic Revlimid, was this quarter-on-quarter higher in September versus June quarter?
I will ask Ashish. Ashish, do you want to comment on this one?
Yes. We don't give guidance on lenalidomide sales because of the contract that we have with them. And on the previous question, I just want to clarify that quarter 1, quarter 2 has not been impacted in Lanreotide, while we may have talked about some anticipated supply issue on our calls, but the numbers we achieved, 35% share in Lanreotide franchise of both assets, and that's what we should revert back to after we have the supply issues sorted out in quarter 4.
That's helpful. Just one more last clarity on this. So once capacity is expanded, are we talking about -- let's say, just say, ballpark understanding, can our market share go up by 20%, 10%, some ballpark understanding in next 1, 2 years for this product?
Yes, market share would be higher.
It's definitely aimed...
And that is for sure in this case.
No, that's obvious, right?
Yes. And just one -- Anubhav, just one thing. I think one of the reasons we've attributed is to capacity increase. Not all the reasons on production not being there is solely linked to capacity. Just to be very clear. There are no reasons on supply chain that constrain the product. The reasons that are constraining the product is production at our partner site. One of the reasons the production is there due to increase of -- increased plan for capacity, but there are other reasons as well, which may have perhaps -- which may be the same that you may have picked up on from the European partner for this for our manufacturing part.
The next question is from Amey from JM Financial.
First question I have on the Africa region. So this quarter, we have seen a good amount of uptake in the Africa segment, so you expect the sales to normalize in the coming quarter because there has been some 10 million jump in the tender sales as well as there is a 17%, 18% growth in the private revenue, while the secondary growth has been in single digits. So if you can clarify on.
Sure. See, a couple of things I would like to highlight. One is, like you rightly said, there's been a significant increase in the tender business, okay? And this is more opportunistic, where we make good margin is where we participate. And we did some vaccine tenders as well, which has helped us to grow that.
Our tender business will always depend on tenders coming in as well as the margin that we are making. So it will sustain, but it can also certain quarters may be different. The other reason for the performance is also -- now we are a fully integrated actor, which was not there in the previous quarter. So that has also added to OTC as well as Rx. And this is going to be sustained. This will sustain because the Actor is now part of our portfolio. So we'll add to growth through Actor.
And the third thing I would like to highlight is that we have been constantly focusing on new launches in South Africa, which has also helped us to grow faster than the market. So yes, it's a big difference, but these are some of the levers, which have helped us and will continue to help us to grow faster than the market.
So is it fair to say that INR 800 crores quarterly run rate is largely a new base or vis-a-vis some movement in the tender timing?
No, we can assume this to be the base. There will be no degrowth, I would say. But anyways, like we always have said, the focus on Africa will always be a margin for us because it is margin dilutive on an overall basis. So it's lower than 25% at the company level. So the whole idea is just to focus on margin to get it back to track. So if that means that we have to give up some revenue, we may give up, but we don't anticipate degrowth in One Africa.
Sure. The second question I have is, if you can provide the updates on some of the filings like respiratory filings like Dulera, QVAR and Symbicort.
Yes. So there, the timeline has not changed for us. So the guidance that we had given earlier, that of FY '27, that continues to be there for Symbicort and QVAR and one more inhaled -- partner inhaled asset that we've talked about.
The next question is from Surya Narayan Patra from PhillipCapital.
First question about the sequential decline in the U.S. sales for the quarter what we have seen, could you clarify what would have impacted? Because sequentially, we have seen improvement on albuterol, we have seen sequential improvement in Lanreotide. And obviously, the Revlimid would be sequentially remaining flat or slightly improved. So what would have impacted the Q-o-Q performance in the U.S., whether it is any pricing...
So one is Lanreotide -- so one is definitely Lanreotide, right? Because we -- yes, so one is Lanreotide.
Your press release indicates, sir, our Lanreotide market share has improved quarter-on-quarter.
That is on -- that is as of August.
Yes, yes. It's a matter of August there. That's right, Umang.
That is as of August. But I think the issue here is largely on account of a reduction in Lanreotide and potentially one other product, which we may have. And also, please keep in mind, though we did the $250 million number in quarter 2, we were very clear that, that was not the trend line for the U.S. business, and the real trend line for the U.S. business was between $230 million and $240 million.
Yes, sure. Okay, sir. That was my first. Second question was about the removal of the patent of this Advair as well as albuterol by GSK and Teva on the request of U.S. FDA. So because of that, have you seen any kind of enhanced competition or any pricing implication? Or do you even expect any kind of -- if not seen so far, going ahead, do you see enhanced competition, price war? Or what impact that you do see because of those developments?
It's difficult to quantify at this stage. But as of now, we don't see really a big impact of this. Because even if the patent is off, for anybody to develop the product, it is going to take 3 years or 4 years. So I don't think that will impact us.
Okay. Then just last one point I wanted to clarify a bit about this Africa integration, the One Africa thing. What is the kind of synergy that we can have? Having seen the success here in One India, while it sounds similarly for Africa, One Africa, but what synergetic benefit that can flow out of these initiatives? May not be on the revenue side, on the profitability side and your strategic initiatives for that. Because new product launches, in licensing for Africa market, those have been the kind of strategies that you are anyway following for those markets. So now with this One Africa, what one should really think and what changes that one can see?
See, I think I can probably, and Umang you can add. So one is a little bit more focused approach to Africa because in EMU, it's like 85 countries sitting out there, okay? So when you just bring it along with Africa, you get a better leadership focus to actually grow that region, and we see some potential out there. So that's one.
Second is some supply chain benefit you will get, especially products going from India to Africa. So there is -- there can be some benefits out there. Yes, apart from that, our One Africa strategy broadly is top cities rather than top countries within the Africa. So rather than going deep in each country, you go deep in top 20 cities. So this actually helps us to achieve that focus on top 20 cities as well in Africa.
The next question is from Ankush Mahajan from Axis Securities.
Sir, my question is related to, we have the Revlimid sales and Lanreotide, I try to understand that. What about our base business, sir, how it performed in the last quarter?
See, we've covered that question, I think, on Lanreotide, like we have already covered, so yes, I think is there anything specific that you would like...
I'm talking also base business.
Yes. So base business has overall done well. In some parts, we've seen some erosion, especially in the business where we have the government supplies. There, we've seen more. In the oral solids, we've seen some erosion. Yes, otherwise, albuterol was our key assets, we've grown in our market share. Budesonide continues to be a strong franchise for us, where we can supply as much as we can. And overall, erosion has been roughly in the low double digit, maybe 10%, somewhere around that number.
Next question is from Neha Manpuria from Bank of America.
On generic Advair, once -- the filing timeline from the U.S. facility was towards the end of this calendar year, is that still on? I mean, are we on track to file Advair? And that would then trigger an inspection for that facility, right? So despite of that, we expect that we will get approval -- we'll be able to launch the product in first half fiscal '26. Is that correct?
Yes. The facility inspection will have to be triggered. You're right about that. I think our filing batches are currently underway.
Okay. Got it. Got it. And my second question, Ashish, on the gross margin, the quarter-on-quarter improvement, I know it's sort of flattish to slightly better despite U.S. being lower, even though acute wasn't as strong, there is some acute impact in this quarter, tender business is higher. So what exactly happened? Is there anything else? Have we seen a better API pricing environment? What's helping the gross margin trend?
The mix benefit that we've got. And like I said, in tender -- in South Africa, there's been tender, but there are other tender businesses elsewhere, which may have come down. But overall, it's the mix. So that has benefited us for the margin -- the gross margin.
Okay. So that's the only driver that there's nothing else in terms of the API cost, et cetera, that we're seeing an improvement in.
API cost has moderated overall, okay? But there are other costs too in propellant that has gone up, freight that gets captured in this thing has gone up because of the Red Sea issue, so it's been a mixed bag out there.
Understood. And from a gross margin -- from an EBITDA margin guidance perspective, given that we are a little over shade over 26% for first half, I know fourth half -- the fourth quarter tends to be seasonally slow for you. But then are we -- other than the one-off impact that we talked about in U.S. because of Lanreotide, given that India will be significantly stronger, any reason to still keep the guidance at 24.5% to 25.5%? Is there any other cost that we are anticipating which should keep margins lower in the second half?
No, we are expecting a normalized quarter 3 and quarter 4. I think quarter 4 is usually sometimes sub-20% kind of a margin, so on an overall basis, we are still staying with the guidance that we have given. Yes.
Next question is from Bino from Elara Capital.
A couple of questions on the U.S...
I'm sorry, but your line is not very clear. If you're in a handset, request you to use the handset.
Yes. Is it better now?
Still the same. We may ask you to repeat the question in case we don't understand.
Is it better now?
No. But go ahead and ask your question if we don't get it...
Bino, please go ahead. Bino, please go ahead. We'll try and understand the question.
Okay. The first question, have you seen any pricing impact in albuterol after the recent competition increase?
Albuterol is already...
I think...
Sorry, go ahead. Go ahead, Umang.
Go ahead, Ashish. Go ahead, go ahead. Please, complete.
No, no. Albuterol -- see already, there is multiple players out there, and we see some -- because there is competition, we see some erosion in albuterol franchise. Yes.
So I assume nothing means here after the latest competition in...
Yes. It's more of a point zero.
Got it. And second, for your Lanreotide -- between your Lanreotide 505(b)(2) and generic products, is there a pricing difference? Or is it more or less the same?
Bino, there will be a difference, but we are not going to comment on that. I think we are determined by market factors. It's not so much that what we control. I think it's a function of the market. And I don't think that's something that we necessarily control.
Okay. And last question, I believe a second wave of any trends will come in generic which goes towards liraglutide, that is, towards the end of this year. Would we be one of them?
Bino, can't comment.
We have not disclosed our pipeline. Yes.
The next question is from Vishal Manchanda from Systematics.
A question on the U.S., basically, to understand the concentration risk. Can you share what your top 3 products would contribute to the U.S. sales?
No, see again, I think it's a differentiated portfolio approach that we have. So we have large products in our portfolio. But we don't give indication of what concentration level is, again, because of the reasons that we have mentioned earlier.
Some broad numbers like 40% plus or less than 40%, somewhere?
So see, I think our old -- the vintage portfolio of oral solids that was there earlier, which -- where there's enough competition, we've mentioned that, that is subject to erosion, and that is about 30% of our portfolio. So 70% would be more differentiated assets for us.
Okay. And second, on your plant in China, would you have filed for approval for the China markets for the respules, like the Pulmicort Respules?
No. No, for the -- we've got the U.S. FDA approval for facility as well as for the product. And yes, of course, we look to get China approval as well in the future.
But would you have filed or you are yet to file for the product there?
For China approval?
Yes. Pulmicort Respules.
Yes, we're not giving that level of detail, I'm sorry, but you can expect us to be a player in that market because of the facility in China.
Okay. Okay. And just one final one on India. Any thoughts on how do you kind of intend to play in the GLP-1 space? Any in-licensing opportunity that you would be seeking or maybe participating in the semaglutide generic opportunity?
Yes, sema generic, we will be participating. And I think, hopefully, we will be amongst the first wave of people to enter in India. In-licensing is always an option for us in our -- in deepening our partnership with large multinational corporations that sell categories of GLP-1 drugs. So I think that is where we are right now from a GLP perspective.
Are opportunities available for out-licensing? So are innovators open to out-licensing in India? So -- since I understand Eli Lilly, which normally out-licenses their products to India hasn't done so far.
Yes. I think part of -- you're right, part of it could be a recalibration of whether they'd like to launch by themselves or have another partner, but it's also linked to how they view global capacity because the initial period -- partners were not able to supply product to market for their existing demand. So now that we believe that is resolved, I think maybe some of the discussions could commence again with the partner, with the rest of the people in India who could potentially be partners for their drug.
Next question is from Shyam Srinivasan from Goldman Sachs.
Just one back on Lanreotide. So the August market share is what you've disclosed. So where did say September market share for Lanreotide 505(b)(2) plus generic end up at?
It will be far lower.
It will be far lower, yes. Yes. But we've not received the data as well for like -- yes.
Should we think of it like at Q1 levels, 20%, or even lower than that?
No, I think the -- so just, Shyam, the full flow-through of what that share would be in September may not come out because there is still stock that -- we had a little bit of stock with us, but you will start seeing that perhaps in October quite significantly.
Understood. And, Umang, to your comments that there'll likely be a Q3 -- sorry, a Q4 bounce back. And are we again talking about similar market shares like 35% or you think we can go higher post the expansion?
I think we can go higher, but it will take some time to ramp up to that. So I think on quarter -- because we are expecting a period of a month or 2 months that there would have been no production at all, so -- which we now have crossed because of September and October. So building that stock back into trade and channel, I think it will take a little bit of time. So quarter 4, the bounce back will not be higher than where Q2 was, if that's your question.
Understood. Yes. So maybe we are gunning for 35% share back in Q4. That's what you're saying.
Well, we want to gun for that, but it completely depends on how quickly the partner runs.
My bad, 35% was just 1 month, so maybe for the average for the quarter is lower, so okay, I get it. Sorry, my bad. Yes. And the second question is just on cash. We have now $1 billion of cash on the balance sheet. So I just want to understand how are we thinking about capital allocation, either dividends or buybacks or even M&A, if you could outline some of the key priorities for us, please?
Sure. So no, I can go first on this one. I think it's, again, what we have mentioned earlier, a key market for us is India, where we would like to grow. So we would look to do -- make acquisitions in India in the dom form space mainly followed by U.S. We keep looking at differentiated portfolio, which comes with some stickiness in the revenue and not creating enough erosion where there is some entry barriers. So I think we look at those kind of portfolios in the U.S. And as we speak, we're looking at some.
And then, of course, on the return of capital to the shareholders, we've talked about 30% dividend payout. We are already close to that. And with the improvement in profits, that should continue to go up. Buyback is a matter of discussion at our Board. So that's an active discussion we always keep having when we look at our use of cash.
Ashish, last follow-up. So valuation for assets, is it something that you're seeing is frothy? Or is it comfortable? Or are you seeing a lot of assets that are available?
No. So just because we have cash, I don't think we will pay more than we think the value of the asset is. And the value of the asset depends on what it can do at the base level and what synergies that are available with our business. So in India, certainly, there will be synergies. So there can be some value that we can attribute to that.
In the U.S., we're looking at assets that are in the institution side, so more injectables kind of assets where we have built an infrastructure of institutional business through Lanreotide now. The idea would be to also feed that with products so that you can actually realize some economies of scale out there. So yes, these are the strategies that we focus on to make sure that we achieve our internal hurdle rate.
Next question is from Saion Mukherjee from Nomura.
My first question was regarding the India business. If you can give some color, particularly on Trade Generics and Consumer. So do you think Trade Generics has recorded growth this quarter compared to last year given the restructuring we have done? And also on Consumer, I remember last year was muted. We had seen like 21% growth this quarter. Why are we seeing sort of that volatility and what's more of sustainable growth here?
Sure. So Trade Generic, I think a couple of things, one is season while our distribution model issue that we talked about in the quarter 1, which had impacted the financials is complete, and there is no reason, that's not the reason for growth not to be normal. I think the season like we talked about in anti-infective has been weak, and it's primarily an acute portfolio. So that's been an issue. And also, it's -- certain regulatory changes in certain FDC products, et cetera, has also impacted part of the sales. So overall, Trade Generic is more or less a very small increase over -- on a Y-o-Y basis.
On CHL, I think we've seen a very smart rebound. I think last year, like you said, was muted. So now this is more normalized growth that we're seeing. It's also the growth has been supported by the Astaberry acquisition that we made. Albeit it's not very large, but yes, we've seen some growth coming from there as well out of the 21% growth that we saw in overall CHL. And this growth should sustain because there are strong brands, and we are working on growing them further.
And my second question was on the tender business. So in South Africa, the vaccine tender, so has that scaled up, the kind of numbers we are seeing this quarter or there is scope for it to sort of go up further? And also if you can share like what percentage of your other business, like outside of South Africa, international business, ex U.S., what is the quantity or what is the percentage of tender sales there, approximately?
Yes. So -- no, no, see, we got the benefit of certain tenders in this quarter. So tender may remain flat or may come down as well. Overall, like I said, we will still continue to grow between 5% to 10% in Africa. And EMU, it's a very large market. It's a mix of DTM, B2B primarily, not a lot of tender out there. And that has grown -- overall as a market that has grown for us at about 18% in -- so -- and then -- but more normalized growth out there would be -- because the dollar market, you should expect about -- again, about -- under 10%, I would say.
So this is the overall growth in the EMU you're referring to, Ashish?
Yes, overall EMU market. We don't give out a breakup because it's a large number of categories like that, that are out there; DTM, B2B. In different geographies, we have different approaches.
Right. But overall, on a consol basis, you're saying the contribution from tender is not very significant.
It's not quite significant, yes.
Okay. And if I can just ask one more question. This is on R&D. So that spend is -- the growth is quite muted, so how are we thinking? What are the new areas we're planning to invest? And over the next 2 quarters and also going forward in fiscal '26, what's the trajectory on R&D spend that you're expecting?
So, I think...
Saion, I think the comparison on R&D -- yes, Ashish, let me take this. I think, Saion, the comparison on R&D is also linked to a large scale trial that was happening in the previous year. So from an already elevated base of R&D numbers, we are showing that muted growth, which you're referring to. That's one.
Second, I think the top line has expanded quite significantly, which is why you're seeing the percentage coming down a bit. But overall, I think in terms of new areas, oligonucleotides, we are looking at that. Peptide, we've almost completed our full portfolio. We are looking at respiratory assets, NexGen, that's coming up. A bio asset that we are developing, that has moved into -- will be moving to Phase I. So I think a lot of those diversifications are happening.
And do you expect any step-up here or -- because of these things or it will take time before the trials start on a larger scale?
I think the big contributor we have seen, Saion, is basically when you have to do large-scale clinical trial. That gets added to this base of R&D. So as your products -- as your project -- as your products reach to get to that Phase III or the PD studies, that's when you realize that this gets added.
Right. So that's a few years out, right, Umang? Or do you think some...
Yes and no. Because the respi asset may also start in about a year or so, right, depending on the patent outlook? Those would start. I think the Phase III on the bio asset could be in the '27 timeframe. So I think some of these will start coming up, depending -- some will come in 2026, some in 2027. I think '25, we should have another clinic as well.
We'll be able to take the last 2 questions. We take the next question from Tushar Manudhane from Motilal Oswal Financial Services.
Sir, just on Goa -- I mean, the 483 observations, so where are we in terms of, let's say, sort of resolving this or sharing the data with U.S. FDA?
No. I think from a Goa perspective, we believe that we have responded to the FDA, and the FDA has to make its determination.
So subsequently, has there been any communication from U.S. FDA in terms of the response appropriateness or anything of that sort?
Yes. The FDA does send us follow-up question, which we have also replied to. So now the -- but the FDA has to make its own determination, which the process is ongoing.
Sorry to drag on this, but just that this may include basically, the course of actions your company is going to take as far as resolving the issues on Goa site. But what could be the timeline to implement those measures and get it -- get the issues resolved?
So the timelines, we have committed to the FDA with over the next 6 months to a year perspective from aspects that we have determined are important, but those are -- I think, the classification of the inspection by the FDA, that data is awaited from the FDA. So we will always have regular corrective and preventive actions for that.
Got it, sir. Got it. And lastly, sorry, a lot of questions being asked already on Lanreotide, but just maybe one from my side. In terms of the partners facility, is that a dedicated facility for Lanreotide or is there -- it's a multiproduct facility?
No, the facility is multiproduct. I think the production equipment is dedicated to us or to the category of product, let me put it that way.
Got it. Okay. So as in the expansion of the facility is not just because of the demand, which may be like Cipla's product is seen for, the partner is looking for the demand for the other products as well. Is that the way to understand?
Well, on the line, specifically, it is to this product, right? But on the overall capacity that the partner may be planning, it may be linked to other products.
Next question is from Alok Dalal from Jefferies.
Just to confirm, did you mention about 10% price erosion for the quarter on a portfolio-wide basis?
So it's Y-o-Y...
[indiscernible].
No, I -- so I can clarify that. So Y-o-Y is about 10% on a blended basis overall, okay? So that's on an average basis. Q-o-Q is low single digit, so about 3% to 5% roughly.
Okay, fine. So not much change with respect to price erosion in the U.S.?
Yes, yes, yes. And this is including your Exelan portfolio, everything, the government tender, everything put together is 10% Y-o-Y.
Thank you very much. We'll take that as the last question. I would now like to hand the conference to Ms. Diksha Maheshwari for closing comments.
Thank you, everyone, for joining us. If you have any further questions, please write it to investor.relations@cipla.com. And wishing you all a very Happy Diwali.
On behalf of Cipla Limited, that concludes the conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.