Cipla Ltd
NSE:CIPLA
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
Abbvie Inc
NYSE:ABBV
|
Biotechnology
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Realty Income Corp
NYSE:O
|
Real Estate
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
1 150.85
1 683
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
Abbvie Inc
NYSE:ABBV
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Realty Income Corp
NYSE:O
|
US |
|
|
Walt Disney Co
NYSE:DIS
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
Cipla Ltd
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to the Q4 FY '19 Earnings Conference Call of Cipla Limited hosted by Kotak Securities Limited. [Operator Instructions]I now hand the conference over to Mr. Chirag Talati from Kotak Securities Limited. Thank you. And over to you, sir.
Good evening, everyone. This is Chirag from Kotak Institutional Equities. I thank the Cipla management team for giving us the opportunity to host this call today.From Cipla, we have with us today, Mr. Umang Vohra, MD and Global CEO; Mr. Kedar Upadhye, Global CFO; Mr. R. Ananth, Global COO; and Naveen Bansal from the Investor Relations team. Over to you, sir.
Thank you, Chirag. Good evening, and a very warm welcome to Cipla's quarter 4 and full year 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 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[Technical Difficulty]
[Operator Instructions]
Thank you. Apologies for the line drop off. Just concluding, Cipla does not undertake any obligation to publicly update any forward-looking statement whether as a result of new confirmations, future events or otherwise.I would like to request Kedar to take over.
Thank you, Naveen, and good evening to all of you. Welcome to our earnings call for the fourth quarter of financial year 2019. I hope you have received the investor presentation that we have posted on our website.Overall, for the financial year despite challenges in the first half, we had a strong second half and are entering FY '20 on an optimistic note. We are happy to see that our focus markets have performed in line with our expectations and guidance.EBITDA margins expanded by 700 bps in quarter 4 versus last year and by about 80 basis points in the full year.Our profit after-tax for the full year also increased by 8% despite higher tax incidents in the year.FY '19 was an extremely successful year with many firsts in Cipla's growth story. To highlight a few: in India, we launched one of the largest consumer awareness campaign, called as, Berok Zindagi, for respiratory, which is a therapy which continues to be our biggest growth driver. We also significantly ramped up our specialty portfolio with in-licensed offerings in diabetology, cardiology and women's health. Recently, we also launched Synchrobreathe and Niveoli as novel offerings in the respiratory.To build a specialty business in U.S. as our second engine, the year saw our largest speciality deals with a proposed acquisition to Avenue Therapeutics. This business will continue to see traction as we progress and will have its own capital requirements.Adding our first respiratory specialty asset, we have licensed Pulmazole, which is an inhaled Itraconazole solution. On the generic side, we significantly ramped up our market share in differentiated product categories and IP-enabled products.In South Africa, we expanded our OTC offerings with the acquisition of Mirren. The acquisition has given us access to a high growth portfolio with strong synergies to existing commercial infrastructure. We also became the third largest pharma company in the private market in South Africa.As you are aware, in Uganda, we completed the IPO of the subsidiary on the Ugandan Stock Exchange. To go beyond uphill and help patients manage their conditions better, we invested towards establishing a digital footprint. In India, we invested in Wellthy along with a commercial partnership to expand our offerings in diabetology and cardiology.In South Africa, we invested in Brandmed and acquired 30% stake to provide connected health solutions to the patients.Coming to the quarterly and full year results. The quarter overall revenues from operations are INR 4,404 crores, which registered a growth of 19% on a year-on-year basis. The quarter saw all our businesses performing in line with our guidance.India business grew by 11% on Y-o-Y basis and U.S. business saw significantly -- significant ramp up, driven by the launch of cinacalcet and grew 41% year-on-year and 31% on a quarter-on-quarter.When normalized for the contribution from cinacalcet, the U.S. business trajectory was quite in line with our expected exit run rate as guided in the last call. We also saw strong growth in the Europe and API businesses during the quarter.On a full year, the revenue from the operations are at INR 16,362 crores, which grew by 8% on a year-on-year basis, supported by strong growth across focus markets. This is despite the fact that we saw significant rebasing in the tender side of the business, challenges in the middle eastern markets and certain supply challenges throughout the year.Gross margin after material cost stood at 66.3% for the quarter, which increased by 300 basis points on a sequential basis and 200 basis points on Y-o-Y basis. The expansion in the quarter's gross margins are driven by contribution from the U.S. launches we alluded to earlier. For the full year, the gross margin stood at 65% marginally higher of fiscal '18.For the quarter, total expenses, which include employee costs and other expenses, stood at INR 1,957 crores, increasing 7% on a sequential basis. The employee cost for the quarter stood at INR 712 crores, declined marginally on a sequential basis.Other expenses, which include R&D, regulatory, quality, manufacturing and sales promotion expense stood at INR 1,245 crores, increasing 11% on a sequential basis. This increase was largely driven by our growth investments in branded markets and clinical trial expenses.Total R&D expense are at 7.1% of revenue. It is on expected lines as we progress on our key assets and as Advair clinical trials progress.EBITDA for the quarter stands at INR 972 crores or 22.1% to sales. During the quarter, these margins expanded by 700 bps and 75% on an absolute terms.For the full year, we saw an expansion of EBITDA margin by 80 bps. A part of this expansion has come on the back of new launches this quarter, which maybe not sustain fully going forward and hence we would like you to be aware of possible moderation. At the same time, this quarter includes certain litigation act provisions linked to delayed receivables and other expense in toto of approximately INR 50 crores over the usual base line.Adjusted for this benefit on a sustainable basis, the EBITDA has shown a very strong double-digit growth versus last year and at our base levels despite seasonality in the current quarter.You would have noticed an increase in the amortization and impairment line. There is a noncash impairment adjustment of INR 206 crores pertaining to our U.S. business. There is a corresponding release in the tax line because of this item. Tax charge for the quarter stood at INR 128 crores. For the full year, ETR is at 27%. Profit after-tax for the quarter is INR 367 crores or 8.3% of sales, which is an increase of 106% over last year. For the full year, profit after-tax increased by 8% to INR 1,528 crores, despite higher tax incidence.Our long-term debt is at USD 550 million, which was mainly used to fund the InvaGen acquisition and ZAR 100 million for Mirren acquisition.We also have working capital loans of about $1.48 million and ZAR 250 million which acts as natural hedges towards all receivables.Total net debt-to-equity is 0.10. Outstanding forward contract as a hedge for receivables as on 31st March is USD 135 million and ZAR 374 million. During the quarter, we have also hedged a certain portion of our forecasted export revenues. The outstanding forward contracts as cash flow hedges as of 31st March are USD 162 million and ZAR 240 million.As we enter FY '20 to meet capital deployment and intelligent resource allocation to support growth at crossover businesses and capital productivity will be important themes.I would now request Umang to discuss the business and operational performance.
Thank you, Kedar. Welcome all of you on the call today. I'd like to start with an update on the overall year and the guidance. But I'm happy to note how our base numbers on both sales and EBITDA have ramped up this quarter.Overall, first half of the year was challenging with multiple headwinds. We came out strongly in the second half of the year with key markets showing good momentum in line with our expectations.As we enter FY '20, most of the challenges are largely behind us and our core business numbers are largely rebased. As guided, we are happy to report that the overall domestic business, which includes branded generics and our OTC business delivered INR 6,420 crores. This is in line with our guidance range of INR 6,300 crores to INR 6,400 crores from our domestic sales in the year. The branded pharma business continued to deliver strong market performance and grew 11.2% versus market growth of 10.5% as per IQVIA MAT March '19.Our outperformance across key therapies of respi, cardiology, urology continued during the year. Our generic business in India continued its consistent performance and grew in double digits.In South Africa private market, where Cipla is the third largest player, we continued to deliver consistent market-leading performance, growing 3x the market at 10.4% versus the market growth of 3.1% as per IQVIA MAT March '19. The Mirren portfolio, which we recently acquired, will further strengthen our position in the fast-growing OTC market in South Africa.The tender business rebasing played out in line with our commentary and may play out in the next 1 to 2 quarters of the year. As we announced during the quarter, we are happy that Cipla has retained its fair share of the South Africa tender for TEE and TLD and will start supplying these quantities soon.In line with our expectations and on the back of strong launches during the year, the U.S. business continued its strong trajectory in Q4. The Q4 sales grew by 38% on a quarter-on-quarter basis driven by strong performance in existing differentiated launches and sales from our launch of cinacalcet. Normalized for cinacalcet, our exit run rate was in line with our guidance of USD 120 million to USD 125 million for the quarter.Our global tender business went through rebasing this year. We're continuing to evaluate our portfolio choices in this business and play selectively for value.Our emerging market territory declined 4% year-on-year, behind challenges in the Middle East markets. We continue to invest towards expanding our Biosimilars franchise in the region. During quarter 4, we added pegfilgrastim for Australia, New Zealand, Colombia and Malaysia and to our Biosimilars portfolio. We expect Biosimilars to become an important growth driver for the business in the near to medium term. As we had articulated, we are progressing well on establishing our presence in the growth markets of China and Brazil.On specialty, we further expanded our portfolio and licensed Pulmazole, which is inhaled itraconazole. This is an important asset for us from a respiratory specialty perspective and gives us a unique opportunity to address an important unmet need in asthmatic patients suffering from allergic bronchopulmonary aspergillosis.Maintaining our facilities at the highest standard of quality and compliance is nonnegotiable for us. During quarter 4, we were inspected at our Kurkumbh plant. We have already responded to the agency. We were also inspected recently at our Indore plant where we had 0 observations from PAI inspection. We also received the EIR for the January '19 U.S. FD inspection at our Goa plant.Our R&D pipeline is progressing as per plan. We filed 4 more assets during the last quarter, taking the full year filing count to 20, including 2 in-licensed assets. Going forward, our target would be to invest towards high-value opportunities. Our respiratory trial program is on track, and we are expecting to file 2 respiratory products in FY '20 and have a launch 1 year after that.Let me move to the business size performance. In India, on a full year basis, we reported an 8% growth adjusted for GST. Through the year, our prescription growth continued to remain at 9% versus the market of 7%. This year, with secondary sales on track and destocking in the market largely done, we believe our inventory has normalized to healthy levels and this gives us a comfortable base for FY '20.As per our guidance in the last call, for this quarter, the business delivered a reported double-digit growth rate of 11% on a Y-o-Y basis with both prescription and generic businesses showing strong momentum despite the reverse seasonality kicking in. This has been driven by strong execution supported by superior prescription generation and market-leading growth across our therapies.As per IQVIA MAT March '19, Cipla continued its strong performance with respiratory growing by 19% versus a market growth of 11%, cardiology growing at 18% versus a market growth of 12%, urology growing at 19% versus a market growth of 17% and CNS growing at 16% versus the market growth of 10%. Overall, in chronic therapies, Cipla became the second biggest player in India during the year growing over 18% versus the market growth of 13% and market share improving from 7.5% to 7.8%.We're also very happy to share that we recently entered into a strategic partnership with LG Life Sciences and in-licensed their entire portfolio marketed products in India. This partnership marks Cipla's 4 years in the high growth and specialty segments of infertility and the human growth hormone business.For the North America business, we are extremely pleased to report the business grew 41% year-on-year and 38% quarter-on-quarter to USD 163 million during the quarter, driven by a ramp-up of existing products and the launch of cinacalcet. Normalizing for the sales of cinacalcet, the base business delivered a robust growth and in line with our guidance of USD 120 million to USD 125 million. For the full year, the business registered an overall growth of 18% on a year-on-year basis. We also continued to do well on our guidance of one limited competition launch every quarter and we'll maintain this as we progress.As we alluded to earlier, we are progressing well on our trials for respiratory products and are targeting to file 2 products in the U.S. this year, launch one and have one launch every year starting with the next year.In the South Africa and Global Access region, what we call SAGA, our South Africa private market recorded its strong trajectory growth growing 3x the market as per IQVIA MAT. With the Mirren portfolio fully integrated, we believe the business is set up for strong growth across the OTC and prescription side of the business.Expanding our offering to patients in South Africa beyond medicines, we acquired a 30% stake in Brandmed, a connected health solutions company. Our investment in Brandmed follows our investment in partnership with Wellthy Therapeutics in India. As mentioned earlier, Cipla South Africa has retained its fair share in the South Africa tender awarded for the next 3 years. We expect to initiate supplies based on this tender soon.Outside of South Africa, we believe that the tender business has rebase largely during the year with the CGA business been growing almost 36% this year. We will continue to evaluate a portfolio of choices in the Global Access business.The emerging markets business declined 4%, largely due to challenges in the Middle Eastern markets. We will continue to watch the global developments concerning some of these markets and stay cautious.We've also -- we mentioned about Biosimilars earlier. We are working towards accelerating our entry in China and Brazil which are chosen growth markets within division.On the specialty business, outside of Pulmazole, we also had expanded IV Tramadol in the earlier part of the year. We expect Avenue to report data at the end of quarter 1 from the pivotal Phase III trial of IV Tramadol for management of postoperative pain in patients following abdominal plastic surgery.To close, we remain optimistic and believe there are strong growth opportunities across our businesses. FY '20 will be a year for us to further enhance our operational execution and leverage the opportunity upward across markets.I'd like to summarize our objectives by market. In India, we will also see further -- we would like to ramp up our chronic therapies and the acute therapies across the in-licensed and specialty brands. We expect this business to deliver market-beating growth.In South Africa, while the tender business softness linked with price declines will kick in, we believe our private market portfolio can deliver significant delta to drive growth in the overall business. For the U.S. market, we will continue to focus on building the trajectory backed up by ramp up of the existing launches. This year is also expected to see Cipla's first inhaler launch in the U.S. We remain -- we will maintain a strong filing trajectory focusing on high-value products.On specialty, we remain committed to building the next regime of sustainable growth for the company. We will continue to evaluate assets that serve unmet needs and expand the portfolio in the areas of respiratory, CNS and the channel of the institutional business.Quality and compliance remains the backdrop of our business, and we will continue to operate our facilities with the highest level of compliance and control.And on the operation side, we have progressed significantly from the challenges we faced in FY '19. Our focus will be to ensure strong back end execution to deliver products to serve patients across our markets.I would like to thank you for your attention, and I will request the moderator to open the session for Q&A.
[Operator Instructions] The first question is from the line of Prakash Agarwal from Axis Capital.
I'm just trying to understand the U.S. business better. You did mention about the base business at $120 million, $125 million. How do you see this opportunity of generic Sensipar, given the fact that it's a phase launch, address launch? And how sustainable do you think it is versus other players not being able to launch? So I mean, what is -- what gives us confidence, is it the Teva pulling back us triggering that? Or if you could just give some broad-level highlight?
Prakash, we are not commenting on cinacalcet due to the nature of the litigation that we are involved in. But we've -- we have -- as we mentioned we have done a phase launch. And it is our belief that there is value that the -- that can serve the market in the U.S. So we can't give more details than this at this stage. I'm sorry about that.
No worries. So the other way, if you can help me understand on the base of $120 million, $125 million and given the pipe that is -- that we are expecting for '20, how do we expect the U.S. business to ramp up?
Prakash, Umang alluded to in his speech that for the full year, factoring for whatever contribution we get from cinacalcet, we do expect to grow in double digit. We are continuing to focus on the trajectory. We do expect some ramp up in existing launches and then we'll come up with new launches as we progress on the review as well. We are also likely to see our first inhaler launch in the U.S. towards the end of this year. So I think we should consider all these factors and model, Prakash. So at this time, specifically on Sensipar beyond is -- because of the nature of the product, we won't like to comment beyond what we have spoken.
Okay. And second question on the India business, we, particularly, have done much better than the peers, especially for the 4Q. We did take one inventory correction in 2Q, if I'm not wrong. So how is the market changing? I mean, most bigger companies, smaller companies, we see they are taking 1 inventory correction in the last 7 quarters post the GST. So what's the sense on the industry and for ourselves that is the channel correction largely done? And are we seeing consumption and demand coming back because the volume growth doesn't seem to suggest that.
So we are seeing -- we've seen -- we have 2 lines of business: our prescription business and our generics business. We'd like to believe that on the prescription side of the business, which is the results that you've been seeing across competitors that I think that the destocking is probably more or less done. On the generic side of the business, we do see that there is some scope still for destocking to happen.
The next question is from the line of Anubhav Aggarwal from Crédit Suisse.
Umang, question on the India business. When we've grown this year at 7% overall, what would have trade generic business grown for us, like what kind of -- would it have been single digit or double digit?
I -- well, probably not very -- I mean slightly higher than our prescription business, but not hugely different, if that is your question.
So basically, it's single digit only, you would say, because we've grown 7% overall?
Well, it could be double digits, but remember the base of this business is a lot lesser than the Rx business. It's almost 1/4 or 1/3 of our Rx business overall.
Sure. Absolutely. And when you mentioned that some destocking can happen in the trade generic business, what exactly does that mean?
I'm sorry, can you -- we had some interrupt. Can you just repeat your question again?
In just previous response, you mentioned that there's some destocking scope is still there in the trade generic business, can you just elaborate on that, what's driving that?
No. I think across the trade this year we have seen in the -- especially in the prescription business, we saw the trade had destocked quite significantly in areas for us at least that concern the acute therapy. And on the Gx business, we're still seeing that, that destocking is continuing to happen. So it's not -- the Gx business trade is a lot more diffused and a lot bigger than the prescription trade in terms of the number of outlets and the chemists, et cetera. So we are still seeing some destocking happening in that side of the business. But on the Rx side of the business, we believe -- which is our prescription business, we believe that this is largely done.
And just last clarity on this INR 50 crore thing that you mentioned, this is there in the other expenses. And what is this nature -- you mentioned something related to litigation costs. Is this part included in R&D or in other expenses?
Anubhav, it's in the other expense line. This is partly litigation, partly -- some of the provisions we have taken in line with accounting standards for receivables. And there's been certain other set of plans. This is booked in other income level.
When you say some provision for receivables, can you just elaborate what does it mean? Why would it take that? Is just like precautionary you've taken provision for bad debts there? Or what are you taking?
Absolutely, I think our accounting standards and internal policies dictate certain provisioning in case collections are delayed beyond a particular aging bracket. So our attempt is always while we provide to recovering later. But at this stage, given our internal policies, we have provided for it.
The next question is from the line of Neha Manpuria from JPMorgan.
Sir, given the 2 deals that you've announced in the specialty side, we get data read-out for one -- at the end of first quarter, and you mentioned -- I think the Pulmi directly goes into trial some time in the second quarter of this calendar year. I'm assuming that these investment requirements from Cipla towards these would increase significantly from next fiscal onwards. Could you give us some color on how the investment would pan out more from a longer-term perspective, not necessarily for FY '20?
Neha, both these deals will near about $150 million to $175 million, partly -- largely in balance sheet, partly in P&L and this is over next 3 to 4 years. We are comfortable to fund this kind of expense because business cases look pretty attractive. And in our view, that's something that we need to do as part of our specialty strategy for the U.S. market.
And the P&L spend would start from next fiscal. That assumption is correct, right?
Yes. And the 7% and 8% to sales of R&D that we've spoken subdues these investments as well.
Actually, P&L spend has also started this quarter, right? We have already taken a huge -- fairly large amount of spend on account of revenue in this quarter.
Okay. Understood. So -- could this quarter numbers includes the impact but -- okay, understood. Okay. Fair enough. My second question is on the South Africa business. Now that the tender -- South Africa tender business has been rebased, the CGA rebased, when should we see the impact of the TLE and TLD?And private market growth, pricing, et cetera, income, sir, data that you could highlight?
No. I don't think we're concerned about private market at all. In fact, private market doesn't have the pricing issue that we spoke about. This South Africa tender process works. It's a 3-year tender and so prices get reset every 3 years. This is the first year of the 3-year tender. So from the last tender to this tender, the prices have moved south, which is usual of this business. So therefore on the tender side, you may see a little softness in South Africa. But overall, the business is aiming to cover that softness with the strong growth on the private side of the market.In the Global Access business, the tenders are now -- and our business has kind of rebased. It doesn't -- a, we are not starting off a high base, and the TLE/ [ TE ] prices have moved significantly south, but we will only play the market for products where we see fit because they are margin accretive.
I understand the pricing on the tenders, sir. I think last year, there was also issue with us taking price hikes in the private market because of currency. So I was referring to that. Is there -- does that concern still continue for South Africa?
Well, last year, the average price increases, if I'm not mistaken, that were allowed in South Africa were closer to 1%. So I don't think we took very -- there were any price increases per se. It was what was allowed by the government, and it was a 1% increase.
Next question is from the line of [ Gulshan Sheikh ] from -- who is an individual investor.
Sir, I have one question about concern [indiscernible] of which you mentioned liabilities [indiscernible] liabilities. Does this mean [indiscernible].
The increase in other connected liabilities for the quarter is oriented by our investments in some of the joint venture and subsidiaries.
[indiscernible]
That's the accounting for standards we're required to do for our investments in some of our subsidiaries and joint ventures noncurrent and noncash in nature.
Okay. And the next thing about that [indiscernible] life sciences has [indiscernible] fairly low numbers [indiscernible]
Sorry, what was your question?
So my question is, about the new [indiscernible] in consolidation with [indiscernible]?
Yes. It's a portfolio product about this -- some of this -- some of them are had been launched in quarter 4 but a few will see launches in subsequent years.
It's in the area of hormones and women's health.
The company [indiscernible] the commercialization, that when [indiscernible] expected?
It is already so much to that.
The next question is from the line of Nitin Aggarwal from IDFC Securities.
Umang, on the Albuterol launch which is there or that you just mentioned towards the end of the year, I mean, how do you see the competitive landscape in the market towards these authorized generic moves by the innovators?
Look, I think, we look at the market -- so first of all, I think this market's just found recently that the AG -- there are 3 AGs. Each one -- each brand has launched the other. So there are 2 things that we see happening in the market.The first is that we think that as long as you're Albuterol, you can take share from any of the other 3 brands that are available. So the launch of the 3 authorized generics has actually helped doing that somewhat. The second is it's a 55 million or 54 million units market. And right now, our understanding is that the unit price of each is significantly higher than USD 20. So if you were to look at what price we could come in with, there is still a significant potential depending on the share we gain.
And you haven't seen the pricing dynamics worsen a whole lot even after the AGs come in?
Well, yes. Because right now, the 3 AGs are by themselves, and they have priced higher than the USD 20 mark. Our math says that we have cost competitiveness to prices significantly lower than that and possibly take a fair share of the market.
And secondly, Gilead launched -- talked about this early to want to launch next year. So is this launched earlier than what was the initial expectations were?
No. I think, we were aware of this.
Okay. And lastly, you've talked about the biosimilar being an important business for us going forward. I mean, the fact that we don't -- have not invested much on our own in terms -- in either in development or manufacturing, I mean, how competitive does it to make us to compete in this market? I mean, how do we see this thing playing out for us?
I mean, maybe I could answer saying that in the regulated markets, we don't know because we have no product for the regulated markets and those dynamics are playing out. In the Rest of The World markets, we believe they are competitive because it's not solely about price, it's also about your reach in the market and what you can do with the product, and we've seen that in India. We're likely to see that in several of the other markets where we made these findings. So I think where -- we stand competitive. What we've not invested in biosimilars is not in our facility and not in our own development because we believe there are many players who can do that and are already doing it in the marketplace.
And when do you see start -- this business become to be meaningful for you in size?
I think with -- the bulk of our launches will probably only start scaling up every year, 1.5 years later. So at this stage, depending on when we get approvals in most of these markets and the competitive intensity of that stage, that's the best time for us to [indiscernible]. Right now, we are just focusing on completing our portfolio offering for most of the 5 or 7 biosimilars across our range of emerging markets.
The next question is from the line of Shyam Srinivasan from Goldman Sachs.
Just back on generics and [ Para ] again. I'm not going to ask specifics, but can you help us size the risk, if there is any, in this launch per se? Is this -- what could be tail risk here because I'm just trying to understand? Do we have to pay very heavy penalties in case the next few quarters change the business? I'm just trying to understand. Is there something that we can kind of fall back on?
I'm sorry. I can't answer that question. We are in litigation with the company, with the [ bandwidth ] company, and I can't answer that question. All I can say is that Cipla has declared that this is a launch at risk and there's a risk element to it. There's a threshold that the company has set as a bar for its risk. And based on that, we had indicated we've done a phase launch.
Okay. My second question is on the U.S. part, the both the DTM and the Invagen. Can you just tell us what's the -- are you seeing if you see the chart? There are clearly things that are coming off. So what is outlook for these 2 businesses?
So clearly, as we have been mentioning about during the last quarters, for -- our focus has been significantly to grow the DTM.As you know, on B2B relationships and products that we have we continue to support, but we are not specifically focusing on increasing B2B in the U.S. because clearly, for us, the opportunity is to launch our own ANDAs and represent and grow our DTM market.
Okay. And in Invagen, sir, is there a plan to kind of divest these 2 parts?
No, Invagen continues to be an important part of our overall U.S. strategy and will continue to be a part of our strategy.
Got it. And gentleman, the last question is on the guidance for margin expansion next year. What is the normalized EBITDA margin for fiscal '19?
Shyam, we wouldn't want to be specific on normalized EBITDA margin, but I think every year in the revenue growth, cost improvements and productivity capital and human resource and other regimen for activities, there will always be an effort to grow the margins. We have been on this journey for the last 3, 4 years, it will continue next year as well. There will be portfolio momentum also which will come handy. And I would keep it at that for the time being.
But sir, I'm only asking fiscal '19 operating numbers. I'm not asking for quantum in '20. But what -- is it 19.3 the right margin number?
19.3 is what we reported. That includes a benefit of the, like I said, for the fourth quarter. So outside that benefit, as we alluded on a year-on-year basis, there is very healthy double digit strong improvement, the base level of EBITDA. What we wouldn't like to do is to separate these elements for the sake of [indiscernible ] .
The next question is from the line of Surya Patra from PhillipCapital.
This is Surya here. Sir, can you just indicate what is the nature of the intangible impairment that we are witnessing? I think, a couple of times that we are in the recent past have witnessed. So is it anything to the kind of product withdrawing or the products there? We are not finding any major hope there or something relating to that or -- and any scope for further more impairment?
Surya, this is from the pipeline products category of the acquired intangibles in U.S. and one of the products where the competitive situation has become adverse and our discounted cash flow was short as compared to the carrying measure of books. It's the shift that we keep doing every year. And having done it at this level, we can't guarantee. But the chances of any impairment of intangibles is pretty low henceforth.
Okay, that's good. And about China, you have said that okay, there is a kind of a best-head thought process for the China business. So can you just provide some sense about it? Like what is your thought process there? Have you identified product or you have started finding product? Or what all that you know, already thought about it? And what is your plan there?
In terms of organizing and in terms of portfolio, in terms of the plans for manufacturing development, I think it's progressed at a stage where we feel quite good and energized. And in the subsequent quarters, as specific -- [indiscernible] and it's time for specific filings on it, I think we will be happy to communicate. But there's already a dedicated work stream in the company which is working on China.
Can you just inference the overall growth of the company in then, let's say, next 1- to 2-year period?
Probably not as much in 1 to 2 years, but after that, this work stream actually could in a very meaningful way.
Okay. And just last question on the margin side again, Kedar, sorry for that. Here on the margin front you would say that, okay, this is the kind of -- whatever the margins that were reported, does he -- that will be following, and again that may not be the case because, obviously, the adverse impact of the Sensipar going down, that was a dead end. Do you see any pressure on the domestic business side so far as margins are concerned?
They are already plans factored in the expansion of the domestic business margins as well, Surya. As far as the products like Sensipar are concerned, the company has worked on it. There's been a fair degree of efforts by the development team, by management team, by legal team. At this stage, we simply can't say talk too much about it. We believe the residual litigation risk is minimal. I also say that on a Y-o-Y basis, if I shave off [indiscernible] the base EBITDA margin have grown in healthy, strong double digits. I'll leave it here.
Okay. And Southern business, whether that is really going to add or your Y-o-Y basis whether the margin profile will improve given the kind of incremental business on the tenders that we are witnessing now?
Yes. Probably, they [indiscernible] asset. I think given the fact that there's once in a 3-year price adjustment we're doing on the tenders, I would be happy if this stay flat. That will come on the backlog growth in private market revenues that will go on the back of some of the cost improvement on the APIs and between tender and private market and the Global Access business. Our target would be to keep on track Y-o-Y while the U.S. business and India business supports market expansion.
The next question is from the line of Chirag Dagli from HDFC Mutual Funds.
Kedar, did I hear you correctly when you said, "Base business EBITDA has grown in healthy double digits for FY '19 versus FY '18?"
Yes. Primarily, I said for quarter 4 but yes. Logically, for the full year as well.
For the full year as well. Okay. So margins would have logically expanded because this is on the base of -- on the back of single digit sales growth?
Yes.
Okay. And you mentioned 2 respiratory products you will file. Do these require clinical trials? And have those costs been incurred already?
We are currently incurring those costs.
Okay. So both the clinical -- both these products need clinical trials and both these are already on?
Yes. Both -- one is a larger trial, one is a smaller trial. And yes, both need trials, and the cost are incurred.Kedar [indiscernible] but we'll take a look.
I understand, sir. And when you look at your Specialty business, of course, you're taking small, small steps. But as you look at the next 2 years, what are the kind of key milestones that you think we should sort of track as far as this whole speciality effort is concerned on the clinical side?
Clinical side will be clear. It will be the initiation. Right now, the objective is the initiation of trials both for Tizanidine patch as well as for inhaler, itraconazole. And for Tramadol, it would be the readout because Tramadol posting pretty much will come to an end in another quarter or quarters from now.
So -- okay. So the results will be out in a couple of quarters?
Yes. So the Tramadol results will be out in the quarter 1 next year, which means the closing will ideally be stopping in the next -- in this quarter or early next quarter. And the other 2 will initiate their trials right now.
Next question is from the line of Nimish Mehta from Research Delta Advisors.
I just have 1 question. Are we making a launch -- how I saw along with the launch of Rivela? And secondly, was there launch of initially week 2 data? Or there will be another one from the CUSP data?
We're not giving that level of detail. All we can say is that Cipla has been a strong player on both the API as well as the formulation side of the business when it comes to HIV medications.
Okay. But will you be launching atripla also or [indiscernible] if that is what you...
So I think as the earlier person had mentioned, our earlier caller had raised a question on exclusivity related to some competitor, right? So obviously, that exclusivity will -- there is a provision of exclusivity and therefore, that player will launch first.
The next question is from the line of Anubhav Aggarwal from Crédit Suisse.
Just one question. We talked about supply constraints in the aspect of 2 quarters, now those are fully resolved?
Ananth will take this question.
Yes. Certainly. They are fully resolved as we said. Getting into the last quarter, we gave the same commentary. And broadly, all the challenges that we had in the first half of the year are behind us.
That's helpful. And second question on the China market. Initially, my sense was that we were targeting largely the respiratory portfolio. Have you broadened our portfolio now? And when you talk about accelerated approach, what does it exactly mean? Are we trying to file more products than we're initially thinking?
Yes. It's broadly respiratory products, but also we're looking at Oncology segment as well. And we are looking to increase the pipeline, increase the portfolio significantly from that it was in the past.
So you already had a facility in China, which can do respiratory. Can you do oncology as well? Or will you make oncology products in India and export to China?
We don't have a facility currently.
But not even for respiratory?
Sorry?
Not even in respiratory?
For respiratory, we're are in the process of creating it.
Okay. Okay. So for oncology back then, you will manufacture in India and export?
We would look at both our routes, manufacturing in India and export as well as look at potential facilities in China from expenses.
The next question is from the line of Damayanti Kerai from HSBC.
My question is regarding Advair trial progress. So how much of the planned R&D spend has been incurred so far? And if you can also update us on potentially when we'll be completing the trials and then potential submission timing for the product?
So I think the trials started very early part of this year, mid-last year and the very early part of this year, the calendar year. And the trial will be almost a 12-, 14-month trial. So if you look at it from that perspective, the expenditure is already in our numbers. And for Advair, it will probably continue to be in the numbers for the next 8 to 10 months.
Okay. So 12- to 14-month for the trial and for...
From the time it started, which was late last year and early this year.
Sure. My second question is regarding your CapEx outlook for next year.
Yes. Damayanti, I think the space next year broadly -- this year it would be -- I think this year our total cash for spend is [ INR 500 crores ]. Our attempt would be to keep it at that level in FY '20 as well.
And it will be -- how much of that will be maintenance?
Lots of that would be maintenance. We do not have plans for a large greenfield or brownfield expansion as of now.
Okay. And 1 clarity on that INR 50 crore one-off. You said that is in other expenses, right? Or other income?
It's in other expenses and the nature of that is litigation and with the lawyer fees [indiscernible], some of it provisioning that I alluded to for delayed receivables and couple of other items.
Okay. Finally, your tax guidance for next year, if you can provide?
We are, this year, at 27%. For the next year, we'll be somewhere between 22% to 29%.
The next question is from the line of Tushar Manudhane from Motilal Oswal Securities.
So just on the U.S. base business, excluding Sensipar with the kind of run rate which we will be having in FY '20. Just in FY '19, I guess, we were breakeven or slightly below breakeven. So how do we see the profitability improving in the base business? And so let's say incrementally -- incremental revenue in such what kind profitability?
No doubt positive, Tushar. Both R&D EBITDA or the U.S. business is positive. I think, in single digit percentages, it will keep jumping up as we get a confirmation from each new launch. Our operating plan for next year: faster expansion in U.S. business profitability.
Okay. So roughly -- so is it like safe to assume like the incremental revenue to fetch 25%, 30% margin, for the incremental revenue, I'm saying?
It depends on the quality of every new launch. And most of our new launches are high-quality in terms of margin profile.
The next question is from the [ Latika Agarwal ] from Quest Investment.
Sir, my question is on limited launches of per quarter guidance. Could you highlight on important launches coming out for the company in the next 2 years?
We are not public about the specific products and molecules. But I think the target to keep adding to our limited competition would create that space.
Okay. And we expect this to continue for the next 2, 3 years, the limited launches per quarter?
Limited competition launches, you mean, yes.
Right.
Yes.
Sir, my next question is how -- the Mirren portfolio that we acquired. We acquired that with ZAR 150 million in FY '18. So if you could highlight on how it has performed in FY '19? And how do we see it going forward being a very high margin and good growth profile?
It's been few months of integration. It's not what -- it had about 3 to 4 months till now. We are happy with this. We have factored a stronger growth on this part of the portfolio. It is the in the over-the-counter category, OTC segment as you are aware. And our business gets factored market expansion synergy and relatively higher growth than our existing private market business.
Okay, sir. So my last question would be on the U.S. fees. How do we -- from the FY '19 levels, how do we expect to add on our base business the revenue growth?
So as we said earlier, we do expect some launches during the year. And as mentioned by Kedar earlier, we expect double-digit growth on the U.S. business.
The next question is from the line of [ D Srihari ] from PCS Securities.
In the Indian concept, what is the share of the chronic portfolio currently? And how do you see this growing over the next 2 to 3 years? And what is the scenario on the U.S. base business and how do you see that panning out?
The share of chronic in our prescription segment is about 40%, 45% now.
And how do you see this growing?
The chronic -- all chronic therapies put together, which is respiratory, urology, cardiology, all of that put together is around 60% of the prescription segment of the India business.
And how do you see it is worth?
Yes. So I think chronic segment, as you know, has higher correlation in terms of growth and profitability growth. And the market trends also suggest that the chronic therapies will have higher growth compared to acute. And that played out for us as well.
Okay. And on the U.S. business?
U.S. businesses, I just made a comment to a previous question. I think, there are 2, 3. One is new launches of the year; second is share expansion; and thirdly, full year EBITDA, what we have launched last year. I think, it will obviously -- our target is to see a double digit growth for the U.S. business.
I'm talking about the older product basically. I mean how is it present pressure on the older products?
The older products, we do not have too much of product concentration risk. And we do see -- in a normalized manner now, which is around 6% to 10% per year. And we are already planned 2 factors that cannot be touched.
The next question is from the line of Charulata from Dalal & Broacha.
My question pertains to India business. What type of growth do you expect overall in India?
We said we would like to beat the market -- and the market is somewhere between 8% to 10%. And our attempt between both our prescription unit segments. Again on the back of [indiscernible] that we're therapy shipping initiatives, reinforcing negotiating efforts, new launches in licensing. This is an [indiscernible] work -- our attempt is to outperform the market.
Okay. And my second question pertains to the raising the funds of INR 3,000 crores. Is this largely for the trials?
That is not for the trials, Charulata. Trials can be funded of -- by our operating cash. This is for inorganic initiatives and other capital expenditure requirements. As you are aware we have been taking this enabling resolution on the board for the -- and shareholders for the last 2 years. This carried is also the same spirit.
Okay. So do you envisage expenses in the current year?
I did not hear the question so if you could repeat? That's fine. [indiscernible] resolution. This -- in total, about INR 6,000 crores; INR 3,000 crores for that, and INR 3,000 crores for equity. It's not for operating expenses. It's largely for capital expenses, either organic or inorganic.
Yes. Yes. So do you expect inorganic acquisition in the current year?
No. We keep scanning. We have targets based on our evaluation whether this target meet our strategic needs and based on our evaluation with the -- they are coming at a price at which we can consume our objection, a transaction could happen.
We take that as the last question. I would now like to hand the conference back to the management team for closing comments.
Thank you, everyone, for joining us today on this call. In case you have any follow-on questions, please reach out to the Investor Relations team at Cipla. So once again, thank you so much for joining us. Have a good evening.
Thank you very much. On behalf of Kotak Securities, that concludes the conference. Thank you for joining us. You may now disconnect your lines.