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Cipla Ltd
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Ladies and gentlemen, good day, and welcome to the Cipla Q3 FY '21 Earnings 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 this 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, sir.
A very warm welcome to Cipla's Quarter 3 earnings call. I'm Naveen 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 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 statement, 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. Good evening to all of you. I hope that all of you and your families are safe and well. We appreciate you joining us today for our third quarter earnings call for financial year 2021. I hope you have received the investor presentation that we have posted on our website. In the calendar year 2020 till now, while the uncertainties and challenges continue to evolve, we achieved several milestones across multiple strategic areas, such as servicing demand across global markets, continued portfolio expansion, along with resilience in our manufacturing and supply chain infrastructure. And this continued during the December quarter as well with a strong and robust performance. We are pleased to record EBITDA margin of 24.8% for the quarter, which is the highest-ever reported EBITDA for the company in the recent history. While on ground field activity has largely resumed, we have been able to maintain tight control on the cost base on account of our balanced mix of digital initiatives and face-to-face engagements. Optimization of FY '21 operating expenses continues to track far higher than the potential of INR 400 crore to INR 500 crore against our operating plan that we have referred to in our earlier quarterly interactions.Our free cash generation continues to be robust, enabling us to prepay our debt obligations. We repaid $137.5 million of in-margin activity loan during this quarter, which was due several months later. We have also repaid working capital loans of INR 300 crores in India during this quarter. Our return on invested capital has seen expansion by about 900 basis points over the last 9 months, driven by our focus on growth, margin expansion, coupled with cost discipline. While part of this expansion is attributable to some levers, which may not always sustain fully in the coming year, this puts us on an accelerated journey towards achieving a sustainable range of 17% to 20% over the long term, which is our aspiration.We are constantly simplifying our manufacturing network to unlock capacity and improve operational efficiency. In line with the same objective, we have divested our manufacturing facility located in Satara India with an agreement to ensure there is no disruption in supplies. Furthering our commitment to carbon neutrality, which is one of our 2025 sustainability goals, we are pleased to share that we're the first pharmaceutical company in Maharashtra to commission a large open access solar power plant of 30-megawatt capacity in partnership under group captive scheme. This project is also a testament to our relentless commitment to use cleaner and renewable sources of energy and contributing towards a greener environment. Coming to the financial performance for the quarter. The EBITDA for the quarter includes the benefit of COVID product sales [indiscernible] supplies in our Global Access business, lenalidomide settlement and cost optimization. Some of these may not sustain in the coming quarters. In line with sharp reduction in COVID-19 cases in India, which was anticipated, the contribution of COVID products, in overall, this is normalizing on a quarter-to-quarter basis, and the reported trading core therapies has helped offset the impact on revenues and profitability. Overall income from operations for the quarter is INR 5,169 crores, which recorded a year-on-year growth of 18%, driven by focused execution and demand-led growth across all businesses. All the 3 businesses under our One-India, which is prescription, trade generics and consumer health, have performed quite well for the quarter. Overall, the strategy progressing well. The U.S. Generics business continues to exhibit strong momentum supported by new launches, including albuterol. In other businesses, such as SAGA, EMEU and API, the performance also was robust. Gross margin stood at 61.4% on a reported basis. There's a marginal decline of 93 bps on a Y-o-Y, while on a Q-on-Q, it's flat. The Y-o-Y decline is attributed to sharp production in EMEA's income and contribution of COVID products having lower than company average gross margin in the overall mix. Total expenses, which include employee costs and other expenses, are at INR 1,944 crores, increased by marginally by 2% on a sequential basis. Employee costs for the quarter are at INR 844 crores, increased by 2.9%, largely by increments. The other expenses, which include R&D, regulatory, quality, manufacturing and sales promotion, are at INR 1,100 crores, increased marginally and continue to be benefited by cost control and digital engagements.The R&D expenditures include depreciation worth INR 221 crores or 4.3% of the revenues. While the percentage to sales appears low, part of that is on account of healthy revenue growth accompanied by last year's adverse spend in the base. We do not foresee much delay in our priority projects and expect the spends to increase as respiratory assets progress in the clinical trials. Overall reported EBITDA for the quarter was INR 1,281 crores or 24.8% of sales. Tax charge is at INR 269 crores, and the effective tax rate has been reduced to 26.3%. We're looking at a full year ETR of 27.5%. Profit after tax stood at INR 748 crores or 14.5% of sales. As of December 31, 2020, our long-term debt stands at USD 138 million towards the U.S. acquisition and ZAR 720 million for the Mirren acquisition and other operational requirements at South Africa. We repaid working capital loan of INR 200 crores in India, as I mentioned. We also have loans of USD 41 million and ZAR 285 million, which acts as natural hedges towards our receivables. Driven by relentless focus on cash generation, we continue to be a net cash positive company as on December end. Outstanding derivatives as a hedge for receivables as of December 31 are USD 172 million and ZAR 705 million. We do also have hedged a certain portion of our forecasted export revenues, and the outstanding cash flow hedges are at USD 192 million and ZAR 403 million.Today, the Board also announced approval for a scheme of arrangement that needs to be filed with multiple regulatory authorities, including stock exchanges, SEBI, NCLT and others. This simplifies our growth structure with subsidiarization of our India-based U.S. undertaking to drive further growth and transfer of consumer business undertaking to Cipla Health Limited in line with our One-India strategy. I would now like to invite Umang to present the business and operational performance.
Thank you, Kedar. Before moving to business and operational updates, I would like to thank our employees for the results amidst the challenging and uncertain phases of the pandemic. We've delivered on our ethos of caring for life. I found inspiration in their acts of courage and commitment. I would like to start by sharing Cipla's continued commitment to offer a comprehensive portfolio of products for battling this pandemic.We have served more than 4 lakh severe COVID-19 patients with our portfolio breadth of Cipremi, Actemra and Ciplenza. We've also supplied remdesivir to other emerging market countries, including South Africa. We have now enhanced our COVID-19 diagnostic franchise with Covi-G rapid antibody detection under partnership for emerging markets in Europe. We also launched a rapid antigen detection test under partnership for the India market.While nearly a large portion of our in-force resumed activity, we continue to leverage teleconsultations, virtual conferences and remote detailing for physicians. We are implementing a hybrid return-to-office approach for all our associates and have offered the choice to work from anywhere between home and office with the most stringent protocols that ensures a safe focus. With that, let me come to the strategic updates and operational performance for the quarter. Over the last 5 years, we have taken concrete initiatives to drive focused administration of our strategic capital allocation, portfolio development, talent and governance. The pandemic significantly accelerated several business and cost remodulation programs translating into quarters of strong performance. I'm pleased to see this continued effort on cost management and productivity during the quarter helping us drive revenue growth and EBITDA higher than expectations.In India, our One-India strategy continues to see seamless execution. We continue with the momentum in our prescription business and have reported market-beating growth for the sixth consecutive quarter now. The prescription business grew at 25% on a year-on-year basis, led by contribution from the COVID portfolio, healthy traction in respiratory and chronic therapies, recovering the hospital business -- in the hospital and acute businesses with the opening up of several OPDs. As per IQVIA, October, December '20 quarter, we continued to deliver market-leading growth in respiratory, where we were 14% versus the minus 4% in the market, urology 8% versus the 7% and derma of 15% versus 8%. Cipla ranked #2 with a market share of 8.1% in chronic therapies and grew by 6% in the chronic therapies. We are pleased to inform that Berok Zindagi 3, Cipla's flagship respiratory initiative, is used by already 9 crore people across India, reflecting the power of digital reach. The trade generics business grew by 7%, adjusted for brand's transition to consumer health businesses. The business witnessed healthy seasonal demand across regions. Our consumer health business has now scaled up to INR 250 crores plus revenue in 9 months, led by growth in organic as well as continued traction in our consumer brands post transfer from the trade generics business. Coming to the U.S. generics. The U.S. generics business grew by 6% to USD 141 million in the quarter, supported by continued traction in the new launches as well as growth in the institutional channel supporting the business. On a 9-month FY '21 basis, the U.S. business continues to deliver robust profitability. We have consistently managed the supply of Albuterol HFA in the U.S., and I'm pleased to inform you that we are ranked #1 in the Proventil market with 84.6% share. The overall Albuterol market as per the latest data, we are trending closer to 14% market share. This unlocking has enabled our U.S. respiratory franchise to cross $100 million in the 9 months of FY '21.Our respiratory asset, generic Advair, is under active review, and we're constantly engaging with the agency. We will have 2 complex assets in the respiratory space that we will move into clinical trials shortly. On the complex generic side, the settlement of generic Revlimid improves the earnings visibility and enhances our U.S. product portfolio towards complex products in addition to our respiratory franchise.Coming to South Africa and emerging markets. While sales in South Africa private business were in line with last year's third quarter, our 9-month growth remained strong at 11% year-on-year in local currency terms. Cipla continues to maintain its third position with a market share of 7% and is growing faster than the market. In the OTC space, we grew at 6%, where the market grew by 3%, and we ranked third overall in the OTC market. Overall, the SAGA region grew by 6% in U.S. dollar terms, supported by solid performance in Sub-Saharan and our tender access CGA business with 15% and 60% growth on a year-on-year basis. During this quarter, we also entered a strategic partnership with Alvogen for 4 oncology products, which will enhance our oncology presence over the long term. The emerging markets business grew by 46% on a year-on-year basis in U.S. dollar terms, driven by continued demand across all regions. We are pleased to share that Cipla is the largest Indian exporter to emerging markets as per the IntelliMax from April to November. The European operations grew 28%, driven by consistent end-market performance and market share gains in some of our key direct market businesses. Our flagship respiratory products continue to demand double-digit market share. Our API business grew by 18% on a year-on-year basis with seamless execution of order book and customer relationships. On the regulatory front, we are actively engaged with the agency and working towards the resolution of observations for our Goa plant. Turning now to our outlook. We are encouraged by the agility and responsiveness demonstrated by the business units across the Cipla geographies as one of our FY '21 strategic priorities. We have firmly embraced our sustainability goals, and we'll continue to update you on the progress of the journey. Our priorities for the next couple of quarters include: maintaining market-beating growth in large branded and unbranded generic franchisees of India, South Africa and the consumer wellness franchise; expanding our large leadership footprint globally and maximizing value opportunity in the U.S. complex generics; prioritizing key U.S. launches with focused execution; scaling our businesses across branding and generic to direct to market businesses of Europe and emerging markets through execution, organic and partnered launches; accelerating our digital transformation to capitalize opportunities across markets; focusing on regulatory compliance across manufacturing locations and embracing best-in-class globally benchmarked ESG practices; and sustained expansion in ROIC over the long term. I know this has been a long day for most of you. 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 Tushar Manudhane from Motilal Oswal Financial Services.
Just on the U.S. side, given that Advair is under review, I would like to understand the product launches in terms -- on the complex generic side other than -- or rather in addition to the market share gains of the Albuterol over next 12 to 15 months.
Kedar, you can answer that.
Yes. So Tushar, I think there are both these levers possible. One is Albuterol and all other products, which are yet to see their full potential. So that's clearly a lever. And some of the other products, what we would do is we would talk about them as the things comes to fruition. So we would want to avoid guiding ahead in terms of specific products, but I think the launch calendar is quite busy and overall Cipla system, both in terms of commercial and the manufacturing and R&D, is all cleared up to optimize. In our view, I think the next 12 to 18 months, I think, could see one of the largest number of launches from our portfolio.
And so you may not share the name of the products per se, but when we say complex, could it be in the range of $15 million to $20 million per product kind of the launches?
Yes, it could vary. It could be even higher than that. So I think the complexity of a product is not always shipped by the value per se. But yes, I think if there is a barrier for entry either by virtue of our filing position or litigation or anything else, I think you should expect that the revenue per product could be in the range that you said or, in fact, higher than that.
Okay. And just secondly, in terms of capacity utilization for Albuterol currently?
Capacity is not an issue. For Albuterol, I think supplies and capacity is not an issue, either on the device stocks or the inhaler manufacturing capacity. That is not an issue now.
And even on the procurement side in terms of devices per se.
No, we are well protected. I think our contracts and our arrangements are sufficient enough in terms of supply ability. So that's not an issue.
The next question is from the line of Kunal from MK Global.
Congratulations on the good set of numbers. So the first question pertains to the savings in other expense. I think last quarter, we guided for around INR 450 crore to INR 500 crore savings in this year. But I think we are tracking slightly on the higher side. So if there is an update on that guidance? And secondly, I think last quarter, you also suggested that we will be providing a number in terms of how much of that is sustainable going forward in next year. So if you could provide an update on that.
Yes. So Kunal, we have crossed our guidance, annual guidance. And I think like what we mentioned, we continue to be energized with a mix of off-line and online model. I think the field will need to have face-to-face engagement. And in fact, as we are speaking, a large part of our field, especially in India, is in the market actively trying to interact with the customers and health care practitioners. But we also have very active digital engagement, which is going on. And either that and overall cost optimization focus has allowed us to exceed the target that we had mentioned. In my view, that promise and potential continues in quarter 4 and, in fact, next year.
At the same level?
No, I would hesitate to give you any number at this stage. But as I said, I think multiple levers for our reimagination projects have allowed us to benefit from that opportunity. And the exact quantum of savings, either in quarter 4 or next year, could be based upon certain discretionary activities that we may want to undertake. But suffice to say that we would -- our attempt is to preserve a lot of these savings, which has been marketed this year.
Okay. And the next question is on the 2 inhalation asset that you suggested that will be moving to clinics. So can you provide some color on what would be the spend on those assets? Would it be in line with what we have seen with Advair or it would be moderately lower? Or relatively, if you can explain in terms of spend on each of these assets.
It will be much lower. And compared to what we spent on Advair is much lower. These are trials, which are not as expensive as the Advair trial.
Next question is from the line of Neha Manpuria from JPMorgan.
Umang, in the last call, I think you had mentioned that the COVID contribution was roughly about INR 400 crores to INR 450 crores in first half. Is the -- has that number materially gone down? If you could give some color on what was the contribution in the third quarter. That's my first question.
Neha, I think it's -- the ballpark number is marginally lower than quarter 3, but it's broadly the same -- quarter 2 but it's broadly the same. And I think we have seen -- we are seeing it go down further as the cases come down. So it's lower than 5%, much lower than 5% this quarter, but it's probably going to be much lower going forward.
Understood. And in terms of the U.S. business, given that Albuterol has ramped up, is there a reason why that sale was flat quarter-on-quarter? Is it because we've reached our fair share and, therefore, we're just refilling rather than seeing incremental sales on Albuterol? Or was there any other reason for the flattish quarter-on-quarter sales in the U.S.?
We've seen increased Albuterol sales in line with the market share. I think the U.S. had a product recalled accounting entry that was done for one of the products that probably led to the overall recognition being at $141 million.
And is all the cost associated with that recall in the quarter or could we see some spillover?
It's all in the quarter.
The next question is from the line of Vishal Manchanda from Nirmal Bang Institutional Equities. Mr. Manchanda, I would request you to unmute yourself if muted from the handset. There is no response from the line of the current participant. The next question is from the line of Nithya Balasubramanian from Bernstein.
Congratulations, Umang and Kedar, on another impressive quarter. I just want a bit more clarity on the respiratory pipeline, specifically generic Advair, you filed in April, May last year, which means if it's a tender that recycled, you should have been gearing back of the FDA. Your TAD date [indiscernible] now. Do you have an update from FDA about the TAD date? Where are we on Advair? And the second question is actually on the partnered Advair. In different forums, we have heard that the partnered Advair is filed or it's still in clinical trial. If you can just throw a bit of clarity on what exactly is the status there?
Yes. So Nithya, the Advair TAD date is late quarter 4, early quarter 1, around that time period. And I don't think there's ever going to be a first pass approval of any asset of this kind. So realistically, like we guided in May, we're looking at 2 years -- when we filed in May, we are looking for a 2-year cycle on Advair, right? So therefore, we -- but we are looking forward to receiving correspondence from the FDA through a formal letter now. We've obviously had many questions that they have raised already on the program, but we are waiting for the formal letter to come. And I think that will happen sometime in quarter 4, quarter 1 -- late quarter 4, early quarter 1, and which we will answer, and then there will be -- obviously, the FDA would review it for its merit event. The partnered asset is an asset that was already filed by the partner, and the partner was thereafter asked some further queries, including some queries around their clinical study. And I think the partners also are responding to that.
So the partner conducted the clinical trial? Or it was developed by Cipla where the partner actually was the lead on the clinical trial?
That is correct, yes.
Is there a TAD date on that? Are you -- sorry, not a TAD date. I think the response deadline, when you likely to respond back and any visibility on that?
So because it's a partnered asset, Nithya, we can't provide too much color, but I think the response should be going shortly if it has not already gone.
Understood. So the other 2 assets, which are likely to enter the clinical -- Phase III clinical trials now, does it then mean that -- so the R&D spend this quarter seemed a little low than what you would normally expect given your -- given that the pipeline is maturing. Is it likely to inch up materially compared to where we are today, now that we have 2 more effects in Phase III?
I don't know if I would call it materially. But yes, I think the R&D spend will increase. Advair is not the right comparator. And I think this will be fairly meaningfully less than Advair, but I think it will -- you're right. It will inch up as the trials begin.
Any guidance on what it's likely to look like in FY '22, the R&D number?
I'm not sure that we would be higher than the range of 6% or 6.5%. I don't see us being higher than that. And that's part of our global -- we've been giving this guidance for a while. So I don't think we'll be higher than that in any case.
The next question is from the line of Nitin Agarwal from DAM Capital.
Umang, on Albuterol, the market is now getting settled with yourself to a few being there and Perrigo looking to come back. Now on a sustainable basis with this competitive landscape, do you see the pricing sort of settling down below about $5, $6 per unit? Or this is where eventually, on the long term, this market such as that is at a broader market level?
So I can't comment on that. I can probably just say that we believe that it's difficult to see how -- who enters and how they enter or re-enter as it's very difficult to do that. I just know one thing that from a cost perspective, we believe we have the lowest cost in the market. And so therefore, we will defend our share responsibly and sustainably.
And have you seen the recent weeks and months any change in the pricing sort of dynamics in the market?
No, not in the recent quarter.
Okay. And secondly, in the past, you've guided to typical complex launch per quarter sort of a run rate for our U.S. launches. I mean when you look through the next year, 1.5 years, 2 years, how should we look at that dynamic now?
Yes, I think starting quarter 1, we should be probably seeing the complex launches starting again? So quarter 1 of next financial year, I think that's when they would start.
The next question is from the line of Girish Bakhru from Bank of America.
Umang, just on this $100 billion franchise, which you said respiratory for 9 months, just correct me if I'm wrong, you are including Albuterol and budesonide or anything else also?
Yes. I think those should be included. Kedar, do you have any -- yes, I think it would include all, but Kedar just confirm.
Yes, it could include all, but yes, predominant share would be by these.
Predominant. Okay. And when you look at like the run rate, 25% of the business now respiratory, U.S. business margins would have it come close to the company margins now?
Yes, yes. The EBITDA, the fully loaded EBITDA of U.S. is now equal to, I mean, slightly less but in the same zone as the company level margins now.
Great. That's helpful. And like you shared TAD on Advair, possible to give update on where is Abraxane?
So I don't think we're commenting on -- Girish, on each specific asset, but as -- what would you -- could you specify what you would like to know?
I mean, do you have a TAD? And I mean, given that there are settlements in this product, do you still see that for you, potentially, this could be fiscal '23 launch?
So I can't comment on launch timing because I think that is confidential. We see this as an attractive product limited by technology. And I think while settlements are there, it's also a pretty challenging product to manufacture.
Right. And just lastly, again, I'm not sure how much you can speak here on Revlimid, if you could throw some more color on -- if there is any color you can give on how big this product could be from March '22?
I think, Kedar, do you want to take that?
Yes. So Girish, I think, firstly, we are sort of limited by our agreement with Celgene on how much to talk, but I think this is going to be quite material. I mean, this is, as you know, outside the -- biosimilars is the largest product on the chemistry side and whatever is the percentage share that we are allowed to seek, this is going to be quite sizable.
Right. And you believe others would also likely settle in this product, right?
We don't know. We don't know. Tough to say, yes or no, how many more, but I mean, difficult to forecast, Girish.
The next question is from the line of Ashish Thavkar from Motilal Oswal Asset Management.
Sir, this Revlimid, obviously, just -- I have 2 questions on this. Whether we're backward integrated is first. And second one is, what are the advantages, given the fact that we now get to share the innovator's rent program?
No. So this is -- I mean, the complex -- I mean, probably this is the most complex Revs program, Ashish. And if that was our own program, setting it up, et cetera, would have been highly complicated, time-consuming, costly. So I think the willing -- I mean our ability to share the innovator's Revs program allows us several advantages. And that's why I think in our view this is quite unique settlement. So that was I think the answer to your second question. The answer to the first question is yes.
Okay. Great. And on this India One strategy, we have always mentioned that we are looking to extract synergies between the consumer health, the trade generics and prescription business, but if could help us understand what kind of synergies would accrue at the EBITDA level or at least in terms of how much percentage point more can we extract?
So the synergies are in several forms. Firstly, under distribution, there could be some benefit. The most important is what we are trying to do now in terms of consumerizing some of the stronger brands in the trade generics business, which have actually a very high customer recall. And the potential to add value to consumerization is quite enormous through the Cipla Health, the consumer health business. I would say in terms of stickiness to revenues, in terms of pricing, in terms of margin expansion and in terms of establishing a strong consumer brand, that's the value accretion. Some of that would be [indiscernible] some of that could be in the valuation in terms of long-term value of a consumer brand. So I wouldn't put any percentage at this point of time, but this is some of out of the recently articulated goals if you have noticed in one of the conferences recently. I think this is one of our biggest objectives to take the global consumer business in India and South Africa from the current, let's say, around 5% to 7% of revenues to beyond 12% of revenues. I would believe add in, in cash flows, EBITDA and valuation. I think this could be a great lever, plus an opportunity to get into consumer healthcare meaningfully.
Yes, this is helpful. Just one more question on this Albuterol. Like almost like 50% of the market is controlled by the AGs. Now we [indiscernible] and being the major players in the market, is there more headroom for us to take more market share?
No, I think this is a more -- it's more dependent on the shares, et cetera, and how the market reacts. So -- and obviously, every company will want to increase its own share whether there is [indiscernible] some of the other competitors. I think the market -- and the market offers that opportunity.
Our next question is from the line of Sameer Baisiwala from Morgan Stanley.
So first question on Albuterol. A few months in the market, do you see a fair bit of porosity between the 3 different brands or most adequate into largest brands? Or do you think generic is a bit tied up for the respective brand?
I think it's a mix of both, Sameer. There are, I think, by and large, there is a -- I think the -- it's a mix of 2. There is the talent to the respect. But also there is some amount of porosity we've seen in the market.
Does that limit -- you being a generic Proventil, does it limit your ability to increase market share beyond a certain point, therefore?
Yes, you could say that. But when we started in the market, the Proventil share was some amount. And today, we see that it is another -- it's also some -- the amount is higher today. So we think that there is a potential to increase. And I think we are happy with the marginal increase happening. I don't think we -- as I mentioned in the last call, we are -- we want to make a sustainable product here and a product that is backed with good quality in manufacturing. So even if it's going to creep up from here slowly, we are fine with that. But I do think there is room to grow, if that was your question.
Yes, exactly. Yes. So just on Revlimid, Umang, it confuses me or rather surprises me a bit that we're one of largest [indiscernible] more in the Q. And for the look of it, at least half of them, is not more, will settle. And everyone gets 5%, 10% fees, volume share fees. I mean, how does it kind of qualifies from a regulatory standpoint, from FTC standpoint? That's question number one. And second, if there are, in these 4 goals of 7, 8 settlers, then what happens to pricing? Is pricing protected over there? Or what market dynamics come in play? So just your thoughts on this.
So I can't comment on the pricing piece, unfortunately, Sameer, because we really don't know. We've never had a situation like this in -- there's almost like a pretty -- it's a pretty benchmark sort of a scenario that's playing out in Revlimid. So I can't comment on what happens in the market finally. But obviously, the fact that there is -- there are multiple players, but no multiple player has enough to -- no multiple player has enough to take large shares of the market for a few years. I think lends us to believe that there might be -- that the market may behave responsibly and more sustainably. So I think that's the thought we had. But we could be completely wrong on this because we've never seen something like this. As regards to your first query, I can't comment, but I think most of these get clearance from various council in any case.
Okay. Great. Yes. And one final, if I may. So a brief move over last 4 to 6 quarters from sub-20% EBITDA margins to now almost mid-25%. So would you want to consolidate around these levels for some time? Or is this a [indiscernible] to move up higher? Your thoughts on this, please.
No, I'm not sure. So Sameer, I think there are 2 sets of discussions you're having within the organization also. So it's a great question. I don't want our EBITDA margins to compromise our growth. So I don't -- I'm here in no tearing hurry to push this higher. In fact, we think, because of some normalcy returning, because of the stickiness of maybe some of the digital initiatives we planned have not probably not stick, I think it won't be uncommon to see the EBITDA probably seep down lower a bit, right? But I'm not sure we are in a hurry to push this EBITDA higher. We actually want to push our top line higher while maintaining this responsible EBITDA that we think we should have.
The next question is from the line of Vishal Manchanda from Nirmal Bang Institutional Equities.
Could you share how many respiratory inhaler filings would you have with the U.S. FDA?
We could -- Vishal will come back to you.
Okay. And second on your QR filing, there's a litigation there. So any sense on how long the litigation can take?
Well, I think -- yes, typically, we avoid commenting on the litigation products, Vishal. So I mean, whenever there is a milestone reached there, I think we will communicate appropriately.
Okay. And just one, do you have any exclusive STS launches lined up in FY '22?
Can't comment at this stage, Vishal.
Our next question is from the line of [ Santam Maji ] from Credit Suisse.
This is Anubhav here. I've got one -- actually a couple of clarities from the medium-term guidance given. One is on the U.S. sales addition of $300 million to $500 million over next, like, 3 to 4 years. Like just very clear was that do you include Revlimid sales here? And if you do, because it's a [indiscernible] and do you just have a good amount of idea about it? Where do you include it in the lower band or the higher band?
Sorry, I had problems hearing. Could you please repeat it?
Sorry, I'll be louder, sir. So question was on the guidance that you've given on the U.S. sales. Can you guys hear me now?
Yes, I can. Yes. Please go ahead.
Okay. So when you mentioned that your U.S. sales increased by $300 million to $500 million delta over the next 3 to 4 years, my question was, do you include Revlimid revenues here? And if you do, because you have a fair amount of certainty on the market share, which has promised or settled there, do you include it in the lower end of the guidance here or the upper end?
I think, Revlimid is included, for sure. And I think the beauty of the range is also one that takes into account product delays and launches because we have quite a few complex products in the pipeline. So I think as long as we come in the range, we have -- I think we would have done quite well. So I don't think I'd be disappointed if it's not $300 million and it's -- if it's not $500 million, but it's $350 million or $400 million. I mean we'll try and get the max we can, but that's the range that we have provided.
Sure. That's helpful. And secondly, one more clarity on the other guidance that you've given, which is ROIC of 17% to 20% over recent terms. That roughly amounts to the same kind of margins that we're making. I know current margins are elevated to an extent of some costs are not normalized. But over the next 3 to 5 years, when we're talking about Revlimid included, Advair coming in, et cetera, we're largely talking about the same margins at that time as well.
You mean the same -- Kedar, you want to take that?
No, I was just saying the capital base, Anubhav, might be a bit higher. And while a large-scale acquisition is not factored in this, that it could be medium -- low- to medium-scale acquisitions. So I mean, that's -- but you are right, I think we have an opportunity to do more than what we have said. But I mean, for the time being, since the sustainable ROIC till last year was tracking at 12% to 13%, we felt it appropriate as a first step to target 17% to 20%. But yes, there is an opportunity to do more on that goal. But having said that, I think one of the things which I would like to just mention. These assets are -- I think the execution here is -- the potential unlock here is the ability to execute on that, both from a supply and manufacturing and do that sustainably. So I think while we could do better. I also want to just caution that it's not something which will come -- it's not like any of a regular product, which can pick up share immediately in the market or, for that matter, be difficult -- be easy to deliver. This is -- these are difficult products to do. So that's the reason that we also want to be cautious about what we're giving out.
That's very helpful. If you allow, I have one more question or I can join back the queue.
Please go ahead, Anubhav. Please go ahead.
Just one question on Albuterol. I was just reading the market, the brand share in market right now [indiscernible] 18%. Who did the sales things like as long as the brand market share at roughly the pace experience suggested then typically retail market share once multiple [indiscernible] entered about somewhere between high single digits, thereabouts. So that is easy skill for the [indiscernible] to take more market share, but after that taking market share, either generic or [indiscernible], will be difficult and that would be normalization of market share?
Yes. I think right now, it's -- the market is mixed. You're right. With the brand holding share, the AGs holding share and then the 2 generic players and one generic player who possibly will re-enter at some point in the future. So yes, I think there is scope for the generic share of the market to go up, definitely. I think there is scope between -- for that to happen. So I'm not sure that I can guide to a number, Anubhav, but I think we're clearly seeing potential for this market for generic players to grow.
The next question is from the line of Prakash Agarwal from Axis Capital.
Pardon the background noise. First one, on your scheme of arrangement into Cipla biotech you are using the term for U.S. subsidiary. I mean, how should we read that? And the other one is consumer business. And more so, what's the rationale of doing it turning into only one subsidiary?
Yes, Prakash, as we said, the scheme is -- I mean, the announcement is just an initial approval by the Board for us to file the scheme with multiple authorities. So I think there's a long time between the procedure that we will need to navigate. We will approach shareholders also. So that's the first one. And I think like what we said, this allows us to simplify our structure, and this allows us to align the resources in the Indian facilities with the needs of the market. I think the trade generics to CHL consumer undertaking transfer is we have referred to it. So this sort of cements what we have been doing. And the subsidization of the assets in India, which are focused on the U.S. business, that also, I think, in terms of bringing efficiency, bringing structure, which is more efficient. That enables us to operate with lot of focus. So that's the rationale and objective. In future, this also opens up multiple strategic options, but nothing is on table now at this time.
The strategic option you mean funding or expansion to fund?
Possible, yes, yes. All the -- I mean, basically growth options because I think we are quite excited with the launch momentum in the next 12 to 18 months and 24 months. And while that goes on, I think this is just an enabling structure that we are creating. As I said, at this stage, there is nothing on the cards.
And the term biotech use is right?
This is a company within the group. It's a 100% wholly owned subsidiary within the group.
But we should not read into turning into a biotech investment?
No, no, no. Not at all. Not at all. This is just, I mean, a vehicle, which is our 100% wholly owned subsidiary, and we have been advised back to the appropriate entity to use.
Okay. Got it. Fair enough. And secondly, on the U.S. business, I'm sorry, I joined the call a little late, multiple calls today. But US Q-on-Q is still flattish, and your presentation says that market share has picked up in Albuterol. So has the base business eroded significantly? How should we read into it?
Not really, Prakash. We answered that question. We -- I think we are in the zone in which we wanted to. The increase in market share appropriately reflects in the sales of Albuterol that we book in the financials. I think this is a recall of about $2 million, $3 million that we had to take. And if you adjust for that, I think there is an appropriate quarter-on-quarter growth.
Okay. And base wouldn't have eroded significantly, the normal...
Not really. Not really.
Okay. Perfect. I'm sure you answered this also. India ex-COVID, I mean, India is phenomenal growth, right? So there's a base business, there's COVID-related sales. So if you eliminate or ex off COVID-related sales would be -- have you answered that already? I'm sorry about that.
No, it's about -- I think it's about 6%, 7%. So if you -- the growth in non-COVID portion is about 6%, 7%, and we are happy to see that many therapies outside COVID have seen growth coming back now.
Okay. Perfect. And very quick ones. EM, phenomenal growth again. Understand it's been for a couple of quarters. How do we see this forward? And what is leading to this growth?
So I think the sequential run rate, Prakash, should continue. I think -- good thing for us is this is quite broad-based between Middle East, LatAm, Asia Pacific, Australia, so all the countries like Sri Lanka, Nepal, et cetera. And many of our B2B arrangement, I think this is pretty broad-based, and it should continue sequentially. We'll be able to better forecast the Y-o-Y growth next year around May. But I think the sequential run rate should continue.
What I'm trying to understand is, could it be related to the COVID-related sales also because these flattish would highly depend on India, larger players like you?
Not really, not really. I think our basket for emerging markets at this stage does not include too many COVID medicines.
This is the base portfolio that you're selling?
Correct. Correct.
And last one with your permission. On the R&D side, you've done the big filings. How do you see the R&D going ahead for the year '22, '23?
We do have priority projects. As you know, we have brought in lot of focus now in the portfolio under development, and that is going ahead well. In terms of the percentage to revenue, R&D spend, I think that could hover. I think current quarter is low, and we have always said that it could marginally inch up.
But keeping the margins at similar levels with growth being the priorities, whatever?
That's true.
The next question is from the line of Charulata Gaidhani from Dalal & Broacha.
Yes. I have 2 questions. One about Albuterol. What is the current market share? And where do you expect to reach in a year also?
Yes. Charulata, within overall Albuterol market, comprising all brands and all AGs and all generics, I think we are beyond 12% or so, and we do expect a gradual ramp-up from here onwards.
Okay. And do you -- why is the ramp-up gradual in Albuterol?
Yes. I mean, it's in line with the prescription pattern. It could be higher as well, but I think we are happy with where we are. And I mean, you have seen a sharp increase in the last few months. There is always an opportunity.
Okay. Okay. And second, how do you plan to increase in consumer health? Consumer health currently is around INR 300 crores. Where do you see it going over the next 2 years?
Yes, see globally, we have that in India, the consumer health businesses in India and South Africa. And I think there are several growth levers, which excite us to -- as we look forward for the next 5-year journey. And that's what we said that potentially, the opportunities to do more than 12% of our global revenues in the next 3 to 5 years. And that's based on, Charulata, multiple levers, like what we have done this quarter in terms of transferring certain channel brands from the trade generics business, organic growth in several therapies where we are present currently and possible inorganic moves.
The next question is from the line of Sameer Shah from Valuequest.
Yes. Sir, I just wanted to check on what would be the extraordinaries during this quarter and in the revenue mix settlement amount, et cetera, whatever is not sustainable. If you remove that, then what would be the margin?
So it could still be quite decent, Sameer. And the reason for that is, I mean both, I think, robust performance across geographies with very good product mix and cost control.
Right. But Revlimid settlement amount would be high, right?
That's around INR 50 crores. That's booked in other income line. Even if you ignore that, Sameer, I think we have still done well.
The next question is from the line of Nitin Agarwal from DAM Capital.
So on the emerging markets, in the past, you've talked about using biosimilars...
Nitin, we can't hear you.
Sir, I request you to come closer to the phone and speak.
Over the last few quarters, how was experience been in terms of pickup in biosimilars across these markets? And is there any rethink on how you're looking at that space as is opportunity?
So we could only hear about biosimilars and emerging markets, Nitin. What's the exact question, please?
Something on the biosimilar that can be in the emerging markets, we've talked about, how has the experience been in terms of our scale up in this space during the out-licensing strategy that you used in the -- that we've been using for growing biosimilars business in the emerging markets for us?
So Nitin, we have signed multiple high-value in-licensing arrangements at quite decent margins, in line with our thresholds for the margins. And I think many of these are lined up for monetization from the year after next. Some of them next year, but largely the year after next. And all going well until now, in terms of the milestones towards launch, in terms of filing approval, interactions with regulatory authorities, market study, customer feedback, all going well.
And when you guys -- looking at the markets, how competitive do you see these products opportunities are going to be? Are they going to be -- I mean is this going to be limited competition opportunity across markets? Or it's going to be a reasonably competitive market where your distribution presence is going to make all the difference from different players?
No. We think that I think they will be fairly limited. We don't expect multiple entry. We do think they'll be fairly limited. And overall, decent pricing. And as you rightly said, I think our ground presence allows us to target good market share. And I think country by country, for country or for products, the value may not be as high, but as we cumulated towards the entire emerging market, including South Africa. In our view, this is going to be quite sizable business from the year and the year after next.
And lastly, Kedar, on the API business, I mean how -- what's been our thought process in terms of the PLI scheme? Is it -- are we -- do we see that as an opportunity? Have we applied for certain products on the scheme?
It is an opportunity, Nitin. I think we are sort of working with the government and the regulators to ensure that the product lines in which we are present are included in the scheme. In the current schemes, which have been announced and awards have been made, as you would notice, we are not present, but we do hope that in future, we can participate and join the scheme.
So the next question is from the line of Ritesh Rathod from Nippon India.
Can you help us understand your outlook on -- for next quarter across businesses, Q4? Why I'm asking this because of the seasonality. At the same time, India may not see that kind of COVID. At the same time in the U.S., you may see full quarter reflection of the Albuterol higher market share?
Yes. So some of those will play out, Ritesh, I think. Region by region, I think, a variety of factors would play out. And India, especially, I think you're right. I think there is a reverse seasonality. So that's part of our operating plan. I think a little bit of a reverse seasonality playing in India business. We referred to the COVID medicines being linked to a trajectory where the cases are low now, significantly low. So that will play out. And to some extent, I think a part of our Global Access revenues by virtue of higher import clearances by our customers are a bit higher this quarter. I think those are the factors which will play out. All this is lower and all this is part of our operating plan.
And in case of U.S., would the month -- the quarter end market share that would get fully reflected in next quarter's number?
We do hope so. Yes, we hope that. I mean most likely that will happen, correct.
So net-net, this will be flattish kind of or positive buyer?
No. I would pain to think that there's a positive buyer.
Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.
Thank you, Malika. Thank you, everyone, for staying with us on this call today. In case you have any follow-on questions, you can always reach out to us. So thank you so much. Have a good evening ahead.
Thank you. On behalf of Kotak Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.