Cipla Ltd

NSE:CIPLA

Earnings Call Transcript 2020-Q4

[Operator]

Ladies and gentlemen, good day. Welcome to the Cipla Q4 FY '20 Earnings Conference Call hosted by Kotak Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Chirag Talati from Kotak Securities Limited. Thank you, and over to you, sir.

[Chirag Talati, Associate Director & Senior Analyst]

Hi, good evening, everyone. This is Chirag from Kotak Institutional Equities. I thank the Cipla management team for giving us 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; and Naveen Bansal from the Investor Relations team. Over to you, sir.

[Naveen Bansal, Investor Relations Executive]

Thank you, Chirag. Good evening, and a very warm welcome to Cipla's quarter 4 earnings call. Hope you and your families are well and safe. I'm Naveen from the Investor Relations team. 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. Kedar, just one request, we are still getting some messages that people are still dialing in. So -- yes, so...

[Kedar Upadhye, Global Chief Financial Officer]

Yes. Maybe we will start, and maybe people will join.

[Naveen Bansal, Investor Relations Executive]

Sure.

[Kedar Upadhye, Global Chief Financial Officer]

Thank you. 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 fourth quarter earnings call for fiscal 2020. I hope you have received the investor deck that we have posted on the website. Globally and as a country, we are going through a health crisis of unprecedented proportions raising a lot of uncertainties about our operations. Before sharing commentary on the numbers for the quarter, I would like to talk about how we are managing our options through the pandemic. I'm pleased to report that our teams across operations, including manufacturing, supply chain, R&D and marketing, have demonstrated strong resilience on the back of robust business continuity plans. We did experience some logistics and dispatch challenges towards the end of March, but the situation has significantly stabilized now as we speak. For long-term pandemic preparedness, we are proactively derisking the business with increase in inventory holdings, critical APIs, intermediates and KSMs and adequate levels of finished goods. Our manufacturing facilities are operating at healthy levels with a bit of different -- differing attendance at plants in various parts of the country. We have also temporarily reduced production for some of our low margin, noncritical products to release manufacturing bandwidth for more critical products. On over product approvals, as we speak, we don't anticipate any major delays in approvals, but we continue to monitor the same, and we'll provide updates as and when appropriate. In the coming quarter, we will continue to focus on cost optimization and strong cash generation. This FY '20 profit after tax is the historically highest profit after tax for Cipla. And before we make any year-on-year comparisons, you should note that in the previous year, we have the contribution of Cinacalcet, which is not there in the current year at that level. Coming to the quarter, there are certain items which have impacted our quarterly numbers. These are as follows: towards the end of the quarter, because of the lockdown announcement and related logistics and dispatch challenges, our sales were impacted by almost INR 200 crores. Most of these sales pertain to our India prescription and emerging market geographies, which are very high margin. While this will be recovered in Q1, this is included -- this has impacted the EBITDA for the quarter by about 200 basis points. Included in the EBITDA is a sizable cost for Goa remediation, where in work was fast track, and majority of the costs are now already booked. And hence, we believe the subsequent quarters will not have any major P&L charge. For the quarter, overall income from operations stands at INR 4,376 crores, recording a Y-o-Y growth of 7%, where normalized for contribution from IP enabled opportunity in U.S. in the base, along with strong performance across our branded markets in India and South Africa. As mentioned earlier, the sales for the quarter were impacted by over INR 200 crores because of COVID-linked dispatch situation. Gross margin after material cost stood at 61.4% for the quarter on a reported basis. Total expenses, which include employee costs and other expenses, stood at INR 2,054 crores, increased by 4% on a sequential basis. Employee cost for the quarter stood at INR 764 crores, increasing by 2% versus last quarter. The other expenses, which include R&D, regulatory, quality, manufacturing and sales promotion, are at INR 1,290 crores, increasing by 6% sequentially, largely driven by Goa remediation expenses and other growth linked investments. Total R&D investment for the quarter are at 7% of revenues. Over the last 3 to 4 months, we have seen strong validation and successful execution of high investment, limited competition portfolio with the approval of Albuterol and completion of trials for the generic Advair and filing of another complex inhalation asset. This will result into moderation in our R&D spends in FY '21, as we had guided earlier. Reported EBITDA for the quarter was at INR 652 crore or 15% to sales. As highlighted earlier, the COVID link cut-off has impacted this by about 200 basis points. Tax charge for the quarter stood at INR 86 crore INR. In fiscal '21, we expect tax rate to moderate downwards given the changes in the corporate regime -- tax regime. Profit after tax is at INR 256 crore or 5.6% of sales. During fiscal '20, we maintained very strong focus on cash generation. We prepaid USD 275 million of Invagen acquisition loan ahead of schedule during the year. Our long-term debt now stands at USD 315 million, out of which USD 275 million is towards the Invagen acquisition. And ZAR 720 million for the Mirren acquisition in South Africa. We also have working capital loans of about USD 41 million and ZAR 280 million, which act as natural hedges towards our receivables. Total net debt-to-equity is 0.05 and very healthy. Outstanding forward and option contracts as a hedge for receivables as of March 31, 2020, are USD 197 million and ZAR 510 million. During the quarter, we have also hedged a certain portion of our forecasted export revenues. The outstanding cash flow hedge as of March 31 are USD 121 million and ZAR 312 million. From a capital allocation perspective, we have significantly improved our return on invested capital over the last 2, 3 years by almost 300 basis points. We continue to maintain our aggressive investment stance in established branded franchises of India, continued focused investments in South Africa and calibrated investments in the U.S. Generics & Specialty business, which will drive further improvement in the return metrics. As I mentioned in the beginning, we will remain focused on ensuring a healthy cash position and reimagining the cost base across our businesses in these times. I would now like to request Umang to present the business and operational performance.

[Umang Vohra, MD, Global CEO & Director]

Thank you, Kedar. Before moving to the business update, I would like to start with some thoughts on the COVID-19 pandemic and Cipla's response. In the wake of the unabated spread of the COVID-19 pandemic, Cipla has stood strong by India as the country's oldest pharmaceutical institution. I would like to express my sincere gratitude to health care workers on the front line as well as our employees who have been working relentlessly to deliver on our promise of caring for life. In order to ensure business continuity, we have set up a global task force with a robust contingency plan to safeguard the wellbeing of our employees stationed at our facilities, depots and other offices, so as to ensure uninterrupted supply of medication support and care to the patients. We also launched a state of relief efforts for advanced testing to safeguard health care providers and supplied communities with medicines, essential hygiene food -- essential hygiene items and food. We had also contributed to the government's PM Care Fund. We're pleased to partner with Gilead for remdesivir. Our partnership with Gilead represents our unwavering commitment to providing patients with access to life-saving treatments and is a significant step towards saving millions of lives impacted by the pandemic. With that, let me come to the strategy updates and operational performance for the quarter. I'll briefly talk about our outlook at this stage for FY '21 thereafter. Last quarter, in India, we had announced our One-India strategy, which brings together the might of our 3 businesses. I would like to share some more updates on the same. We are working on some areas to integrate the 3 businesses, which are the prescription business, the generic business and our consumer wellness business that have converged under the overall One-India umbrella. We are transferring select brands, which have high consumerization potential from trade generics to our consumer business. Some examples include the Prolyte, Maxirich and an entire new range of Mamaxpert. We also launched Ciphands sanitizer under the hygiene category to cater to an emerging consumer need during the early stages of the pandemic. We've also recently launched an Omnigel consumer campaign, where Omnigel, which is a generic product, is benefiting from the inputs provided by the consumer team in trying to create a new market segment for Omnigel.We are in the process of creating a channel task force to deepen channel engagement, investing in strategic partnerships and smart analytics through our entire portfolio and range. We've also improved patient connect through our Berok Zindagi campaign and several other one therapy platforms that we are contemplating. Coming to the business performance, India Rx business delivered its third consecutive quarter of market beating double-digit growth. Chronic therapies ranked #2, driving a significant share of our growth and grew by 12% per IQVIA MAT March '20, broadly in line with the market growth. Cipla continued to maintain its leadership position across Respiratory and Urology, while maintaining a third position in Anti-infectives and fourth in Cardiology. As mentioned by Kedar, the trade generic business continues to drive strong momentum with strong consecutive growth quarter post stabilization of the model change we've limited in quarter 1. To further support our domestic business and allocate capital to the India market, Cipla acquired the 4 umbrella brands in the nutraceutical segment from Wanbury Limited to further strengthen the 4 long -- 4 decade-long presence they had in the women's health category. Value-accretive investments like those as well for Elores, which is an anti-infective critical care asset and Vysov which is the DPP-4 inhibitor that we had bought from Novartis, are likely to reinforce Cipla's strong play in key domestic therapeutic segments. In the U.S. Generics segment, we optimized the IP-led opportunity in fiscal year '20 and scaled our U.S. business significantly. The U.S. business delivered a revenue potential -- revenue of USD 118 million in the quarter, as revenues from the IP-enabled opportunity have normalized, and we have taken certain shelf stock adjustments. We also launched Esomeprazole oral suspension during the quarter with the first-to-file status on the 10-milligram strength. From a launch outlook perspective, the limited competition unlocking has already started with the launch of Esomeprazole and generic Albuterol MDI. Over the rest of the quarter and next, we expect to launch one limited competition asset each amongst the other launches planned in a normal basis. In South Africa and our emerging markets business, the South Africa business delivered strong numbers, growing 10% in local currency terms during the quarter. Cipla ranks as the third largest pharmaceutical cooperation within the South Africa private market by both volume and value. We are all pleased to share that Cipla emerged to be the largest player in the addressable OTC market and the third largest player in the ARV market in the private side. Other businesses like the Sub-Saharan African business were impacted by certain receivables-related challenges, while the CGA business remained flat for the quarter. Our European operations continued the strong in market performance and grew 14% on a full year basis in U.S. dollar terms. The emerging market business was flat for the quarter on COVID-19-related logistical challenges impacting sales, which we hope to recover in quarter 1. In the U.S. Specialty segment, in line with our previously announced strategy of partnering out our CNS assets, we have successfully completed the sublicensing of our NCE CNS asset to a partner for further development. We are also actively exploring partners for the CNS asset -- for other CNS assets like the Tizanidine Patch. This strategic derisking deal has enabled cost recovery, significantly reduced our future R&D payouts, while retaining some future upside benefits from successful filings and commercialization. I'd like to talk a little about lung leadership, where over the past few years, we have invested significantly in lung leadership across our markets. In the U.S. business, we have been creating a sustainable pipeline that offers strong medium- to long-term visibility on revenue and profitability. As you know, Cipla has been a leader in the inhalation therapy, and the milestones achieved in the last 2 months are a testament to the strong R&D capabilities in this space. This also marks the successful execution of high invested limited -- high investment limited competition pipeline in -- particularly in the lung leadership in the inhalation space, and hence, the R&D investments will see moderation to that extent in the coming year. The recent U.S. FDA approval for generic Albuterol MDI and the successful completion of the Phase III clinical study of generic Advair Diskus reiterates the commitment of strengthening our regulated respiratory franchise. We would also like to share that we have filed another complex inhalation asset recently in the U.S. and another partnered asset is in late-stage clinical trials. I'm also delighted to share that according to the latest IQVIA numbers, Cipla is ranked #2 as the largest seller globally for both DPI and MDI devices with more than 120 million units sold globally. As we aspire to become the lung leaders in the world, we are positioning our global respiratory efforts under the [ breathe Think Cipla ] branding. The positioning will bring together an internal task force geared to ensure that we achieve our goal of becoming a global lung leader across our focus markets. I'd like to turn to the regulatory section of the analyst -- at the analyst call today. On the regulatory front, we are working with the U.S. FDA to comprehensively address the Goa observations. Our last update was submitted to the agency in April end. Over the last 15 months, FDA inspections covered most of our facilities outside Goa, where we have already received the EIR for all of them. We will continue to provide regular updates on the same in our quarterly communications and continue to remain focused on maintaining the highest standards of quality across our managing network. Turning now to our outlook. We understand the COVID-19 situation is dynamic, but the underlying fundamentals of our business remain extremely strong. While we see some near-term opportunities, positive trends across our back-end operations and front-end logistics, we are approaching the coming first 1 or 2 quarters cautiously as clearer demand patterns emerge from our market. In spite of the uncertainty, our business teams have actively reimagined their operating models, which includes aspects such as creating a digital road map for the future, optimizing overall resourcing across businesses, speed and agility and making informed choices in areas which matter the most. Managing supply across all key markets is a key priority for us. We have robust plans in place for manufacturing, supply chain, R&D, and marketing with a focus on cost optimization and cash management. We are proactively working on ensuring adequate inventory levels for critical raw material and finished goods in the channel. We will scale our India business across the 3 businesses on the back of the One-India strategy to drive the quality of revenue growth and health metrics. In South Africa, we will continue to maintain leadership positions across both the private and OTC market. And our U.S. generics business shall continue to build upon our respiratory franchise and solidify our position as lung leaders globally. We are looking at a healthy launch pipeline for the year and have already seen traction in the last 2 months, with the launch of Albuterol and Esomeprazole oral suspension. We will also hope to focus on and resolve the regulatory issue at our Goa plant. With this, I come to the end of our message. I would like to thank you for your attention, and we request the moderator to open the session for Q&A. I would like to wish all of you good health in the months ahead.

[Operator]

[Operator Instructions] The first question is from the line of Anubhav Aggarwal from Crédit Suisse.

[Anubhav Aggarwal, Associate]

A couple of questions from my side. First is on the cost angle. Just want to understand the dynamics, how cost would be playing out now? I'm just not talking about the quarter 4, but just playing -- cost playing out now under the COVID situation. So like, for example, in the branded generic market, you'll have a lesser promotion cost now, but on the manufacturing side, we will have maybe higher cost due to social distancing and other norms, et cetera. So just want to understand the interplay of the cost, what is the net impact on us from this different angle?

[Kedar Upadhye, Global Chief Financial Officer]

Yes. Anubhav broadly, what you said is -- that is our experience. So the activity in the branded markets on the ground has substantially gone down right from the day of the lockdown in various markets we operate. So on those activities, we are certainly seeing lower spend. On some of the safety-related expenditure in manufacturing facilities and our depots, we are spending more on masks, sanitizer, food and distribution, et cetera. So I think those categories of spends have increased. But on the whole, we are able to balance it out because in the plants as well, because of the lower activity, there is some reduction in repairs and maintenance and stores and spares and pullover as well. So after the quarter gets completed -- June quarter gets completed, we'll be able to quantify this better for you, Anubhav, but trend-wise, what you said is appropriate.

[Anubhav Aggarwal, Associate]

So net-net, you -- I mean, trend-wise, you're calling it neutral-ish to positive right now from the cost side?

[Kedar Upadhye, Global Chief Financial Officer]

Yes. I would say as of now neutral-ish, too little bit positive. But let's see how it progresses in the coming days.

[Anubhav Aggarwal, Associate]

Sure. And second question was on the Albuterol. I just wanted to understand, 2 points here. One is when we track the IQVIA volumes, it shows a significant jump in the month of March. And now it shows that volumes, which are panning out for last 3, 4 weeks are like 13% to 15% lower than what it was before the shortage level itself. So I just wanted to understand, this is one is IQVIA numbers, but in the market, is there a still significant shortage of Albuterol? That's question one. Second is, is this -- and how is the substitution working now? You've been selling this drug for 3, 4 weeks in the market. Because what we have seen is Perrigo has taken all the market share only from ProAir the brand for which they were AB-Rated. So is it really the 3 substitutions? Like is it Ventolin market also fully open to Cipla when they're going to commercialize Albuterol?

[Kedar Upadhye, Global Chief Financial Officer]

Yes. I'll request Umang to take this question.

[Umang Vohra, MD, Global CEO & Director]

Yes. So Anubhav, you are right. I think the Albuterol expanded by almost 15% from a normal basis on account of the COVID crisis, and I think a lot of it had to do with the characteristic of the product. We believe this is normalizing now. But even without this, this is a 60 million unit market with fairly attractive pricing even today. On your second question, yes. I think the market is interchangeable. The issue is for anyone to take a share of the other side of the market, they have to have adequate capacity because both ProAir and Ventolin has fair amount of units 30 million, 30 million each. So any one player trying to come in and take up this will take a long time to ramp up. But it is our belief that the market is interchanging.

[Operator]

[Operator Instructions] The next question from the line of Prakash Agarwal from Axis Capital.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Question is on the demand scenario. So obviously, we saw a lot of prebuying, both in India and U.S. markets, in February and March. And April onwards, in India, at least, we have seen 11% IPM decline. So how do we see the year panning out when we have clearly have the ambition to outperform the IPM, but what is our view on the IPM growth? Could it be like minus -- plus/minus 5%? Or you think it will be positive, 5% to 10%? And similarly, in the U.S. market, so most of the -- the patients are not -- at least half of the patients not able to go and get treated. So what is the outlook for the volume front?

[Umang Vohra, MD, Global CEO & Director]

So I think let me try and take this. In India, I think we saw a rise in the chronic segment of the market. I don't think the acute segment of the market showed the type of rise that you're mentioning. So there was some uptick in chronic buying, which we also saw as a pattern even at the GST time, the chronic medicine buying had gone up, the GST or the demonetization time. So this normalizes over a period of time. And I think this is what we are also thinking. I'm not sure we're at a point where we can tell you where demand will be. Because there are multiple moving parts on what is the red district, what is an orange and green district. And clearly, the trends are very different, at least from the initial 3-day or 4-day experience that we've had, which in no way is indicative of where the market is. So I think we are still looking at the demand pattern. There's nothing as yet, which seems to suggest that there is going to be deep panic. There's also nothing as yet that suggests that we will have -- demand is going to outpace supply at the way that we're commenting. So I don't think we have any -- we're not seeing any panic signals. At the same time, we're not seeing a huge surge in demand anymore. From a U.S. perspective, I think in that market, we have already noticed that a lot of prescriptions have shifted to be digital. A lot of fills have shipped it to be probably slightly longer in terms of tenure. So doctors have -- from what we noticed from other companies who are reporting 30 days have become 90 days in terms of fills as well as tele consultation has spiked up considerably. So even there, I think over a period of time, the initial, perhaps 1 month or the period just before the COVID might have resulted in a little bit of stocking. I think that will also decongest over a period of time.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Okay. But any number you'd like to give for the IPM growth this year?

[Umang Vohra, MD, Global CEO & Director]

No, I don't think anyone will be able to keep you any number because I don't think it's too early because we don't have a sense of how the districts are behaving itself. So any number given now will be...

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Yes. And my second question is on the follow-up on the earlier question of earlier participant on Albuterol. So clearly, there were shortages until March. And we got a fast track approval, so to say. How do we see the competition coming up now since you have in your press release talked about staggered launch? Would you assume that the shortage situation could lead to one more player at least coming in, in the next 6, 12 months? Or any color you can give?

[Umang Vohra, MD, Global CEO & Director]

Yes, I think it could be expected. There is one more player in the queue. And I think after that, we haven't seen anyone else or heard of anyone else doing a clinical trial. So I think, obviously, there could -- we could expect more competition. But even before the shortage, if we just step back, this was a 55 million to 60 million unit market in the U.S. And during the shortage, it is analyzed to somewhere around 65 million units. So even if the shortage goes away, this is a fairly significant 55 million to 60 million unit market, right? And Albuterol is a fairly large category size by value terms as well. So the shortage is only accounted for a 10% or 8% trigger on a quarterly track rate, which will normalize. But yes, there could be one more player that we are aware of who is in the queue for an approval.

[Prakash Agarwal, Executive Director of Pharmaceuticals]

Okay. And your staggered...

[Operator]

[Operator Instructions] The next question is from Nithya Balasubramanian from Sanford Bernstein.

[Nithya Balasubramanian;Sanford Bernstein;Analyst]

I just want to start by commending Cipla and other pharma companies are actually going above and beyond in these difficult times to provide us with essential medicines. I have 2 questions. One is -- one is a follow-up on generic preventive. So you alluded to capacities. How you need adequate capacities to be able to target, let's say, the Ventolin market or the ProAir market? So does Cipla have enough capacities already? Or are you actually increasing capacities as we speak? Is there a time line when you think you'll have adequate capacities? And the second question was more around the U.S. generic pricing environment. I think we have been hearing that pricing is better now because supply is more important than pricing given the COVID situation. So your thoughts on how the pricing is in the U.S. generic environment? And whatever is happening, do you think it will stick?

[Umang Vohra, MD, Global CEO & Director]

Yes. Nithya, I think we believe we have capacity for what we believe is an adequate share of the market. The thing with any inhaler that recently gets launched is that you just have to make sure that the scale-up happens properly, and that's why we had announced a staggered launch. Because clearly, there are multiple parts involved in this, starting with the API to the device to everything. So just getting all of that full kitted is, I think, is important for us. And therefore, we've announced a staggered launch. But yes, from our perspective, we believe we have adequate capacity to get an adequate share of this market. And on the second price point Nithya, yes, we have seen, I would say, a little bit of a stabilization of prices in the U.S. and in some way, maybe a lot of us are also not noticing -- are not noticing an adverse environment there because there's just so much more to worry about at this point in time. So I do think that things have stabilized, but the general trend of a price decrease being there every year will still exist.

[Nithya Balasubramanian;Sanford Bernstein;Analyst]

I'm sorry. You said the general trend of pricing -- prices declining will continue?

[Umang Vohra, MD, Global CEO & Director]

Will continue because that's the nature of the U.S. market. But the aggressive declines we saw, I think those are beginning to stabilize. So every year, the U.S. market has -- even before 3 years or 4 years back, every year, there was a decline in the market. And that trend will continue. I think it got accelerated with levels, which was pretty high, which we think now are beginning to stabilize.

[Operator]

[Operator Instructions] The next question is from the line of Vishal Biraia from Aviva Insurance.

[Vishal Biraia, Analyst]

Umang, does COVID-19 lead to any changes in the business strategy that you had communicated earlier this year?

[Umang Vohra, MD, Global CEO & Director]

It doesn't lead -- well, for us, I think, yes, in the sense that a lot of the strategic themes get accelerated. We had a theme around wellness, which was a consumer business. We had a theme around lung leadership, which is really around respiratory medicines reaching across the markets. Those are, of course, getting accelerated. I guess the fallout is that our capital allocation towards specialty is now more measured. We are partnering out assets in CNS and on the institutional side, we're looking for how we can strategically align this business between ourselves and somebody else.

[Vishal Biraia, Analyst]

Okay. And last one is the complex inhalation assets that you have in Phase III. So how big is the opportunity here? Any perspective that you could share at this stage?

[Umang Vohra, MD, Global CEO & Director]

So I -- you know it. I do not want to comment on it. I think, hopefully, we -- since the assets being filed, we will begin to see news in the public domain. But at this point, I don't want to comment. It's fairly attractive. And I think it's a fairly attractive asset.

[Operator]

The next question is from the line of Manoj Garg from White Oak Capital.

[Manoj Garg, Senior Investment Analyst]

So one is basically on the domestic market. Umang, given the supply and the logistics challenges what we have seen, have you seen any impact in terms of the inventory orders, inventory at the stockist level? Or do you think that there's enough inventory basis -- that it will not impact overall required volume for the domestic market?

[Umang Vohra, MD, Global CEO & Director]

So by and large, Manoj, my feeling is that there is enough inventory in the stockist channel. And I think there was a period in the last week of March where this inventory really ran down. And not because -- so I think that was one. Second, I think most of this inventory in April kind of recovered. So I don't believe that the stockist channel doesn't have inventory. I think the stockist channel has a fair amount of inventory. The issue is really around the red districts where a lot of stockist may still be shut and who are beginning to now reopen. Initially, everybody was shut for 2 weeks or 3 weeks, and now they're all beginning to reopen. So I think there is adequate inventory in the market.

[Manoj Garg, Senior Investment Analyst]

And this question is for Kedar. Kedar, if we look at -- despite year-on-year, we have almost 4%, 5% kind of growth. But when you look at purchase of stocks in trade, that has almost gone up by 30%, 35%. Would you like to add anything specific out there?

[Kedar Upadhye, Global Chief Financial Officer]

Yes. See, we -- I mean, our purchased finished goods, Manoj, are for generics business and -- about 30%, 40% of the prescription business. And over the last few months, we have shifted some of the other market supplies as well to contract manufacturers. So depending upon the mix, it has gone up. There's nothing unusual there. I think we operate our inventories with respect to the norms that have been defined. So I don't see anything unusual with respect to this increase.

[Operator]

The next question is from the line of Sameer Baisiwala from Morgan Stanley.

[Sameer Baisiwala, Executive Director]

Just 2 questions on COVID. A, what is your current capacity utilization? Are the manufacturing operations by and large on track? And second, what is it that you are seeing in India on the ground in terms of doctors opening up their private practices? Are the prescription generation happening? Also given that hospitals are not having any outpatients. And also, what is -- what about the feet on the ground for you with the medical reps? Are they visiting doctors? Any color on this.

[Umang Vohra, MD, Global CEO & Director]

Sameer, sure, I can talk about a couple of them. I think from a capacity perspective, utilizations will vary by plant and by location. Because there are some locations which are closer to Mumbai, where there's a big lock down and there are some locations where operations continue as normal. But if your general question to me is pre-COVID where you were versus post COVID, where are you in terms of overall, I think 80%, 85% is back in terms of utilization. And it is my belief that the other 10% or 15% will also get there very soon within a week or so. So since most companies carry the inventory, I don't think that this has resulted in a shortfall across the chain. So I think that would be on capacity. On -- and I'm talking about global view shares, Sameer, so India plus our plants in the U.S., plus our plants in South Africa. If you look at maybe the domestic market, yes, I think we've just resumed. I think some parts of the market just began, the green zones opened up. So the field work has started to a limited extent and on a very precautionary basis. But we've also seen that a lot of connect with the doctor shifted digitally in the last month or so. And I think that is what we are seeing. And from a rep perspective, I think a lot of the engagement is happening digitally across companies, including Cipla. And if -- once the districts begin to reopen, I think the field force will be working optimally across this.

[Sameer Baisiwala, Executive Director]

Can you say digitally, you mean to say is virtually either video calls or conference calls?

[Umang Vohra, MD, Global CEO & Director]

Yes. That is right. That is right.

[Sameer Baisiwala, Executive Director]

Okay, great. And just one more. And you said you won't talk too much about the inhaler product that you filed, but I'll just try anyway. So, a, is it patent protected or is it a general size opportunity if you can talk about that? And are you first-to-file based on the clinical trial data that you may have? And third, what could be the potential time to launch, is it 1 year cycle review or are there any IP issues that may delay you beyond that?

[Umang Vohra, MD, Global CEO & Director]

Sameer, there is an IP situation on the product and I think that this will therefore go through the regular period of review. I don't think it's a 1-year review in any case for any rescue product. So it won't be unusual to expect the same 24- to 30-month clock period on this.

[Sameer Baisiwala, Executive Director]

Okay. Great. Sorry, Umang, just to clarify on the doctor side, the prescription generation, is it like 50% of what they were doing pre-COVID? Or is it higher or lower, any idea on that?

[Umang Vohra, MD, Global CEO & Director]

It -- no. I think Sameer, it depends. It also depends by practice. So for example, we see dermatology is down quite significantly. We see dentists down quite significantly, right? But there are some practices which are chest physicians, for example, is pretty robust at this stage, right, across zones because even though the doctors may not be meeting people -- may not be meeting people physically, there's been some prescription generation that they are doing, tele and e and virtual wise. So it depends across the universe. There's some categories worse affected than the other.

[Operator]

The next question is from the line of Neha Manpuria from JP Morgan.

[Neha Manpuria, Analyst]

Umang, if I heard in one of the questions before you talked about relooking at the institutional business for the U.S., either partnering or on your own. Is there a change in the way we are looking at commercializing tramadol?

[Umang Vohra, MD, Global CEO & Director]

No. We will still commercialize tramadol, but we are looking for a way in which we can do it optimally with perhaps lesser capital allocation to it. Because the first 1 or 2 years could result in some amount of increased expenditure to build market. So we're looking for ways on how to offset that expenditure. We clearly can't -- don't want the entire expenditure to be hitting us.

[Neha Manpuria, Analyst]

Okay. Okay. So more on commercialization front?

[Umang Vohra, MD, Global CEO & Director]

That's right. That's right.

[Neha Manpuria, Analyst]

Understood. And second on the India business, leaving aside the impact that we saw in March and April in terms of inventory, do you think there is scope for further inventory reduction at the distributors, which could potentially impact the sales? Or how should I look at the working capital for the India business? Is there a risk that number goes up this year?

[Umang Vohra, MD, Global CEO & Director]

I don't think the inventories would go up in India, simply because, a, there are just too many modes -- in my view, there are just too many modes. Inventory may go up with companies or may not go up with the trade. And it's my belief, Neha, that the trade is well supplied, right? So I don't think that is an issue. I think there could be some stress within the market on the receivable side, especially from the hospitals part of the network. There, I can clearly see a little bit of stress that could emerge over a period of time, if not, if the demand doesn't resume properly. And this is not across the big hospitals, which are bulk of the buyers, but perhaps out of the smaller guys in the network.

[Operator]

Next question is from the line of Nimish Mehta from Research Delta Advisors.

[Nimish Nagindas Mehta, Research Analyst]

I'm sorry, but I couldn't get you -- get your earlier comment. You said that there has been COVID-related logistics issues, which has impacted the sale. So which part of the business is it exactly impacted?

[Kedar Upadhye, Global Chief Financial Officer]

Nimish -- yes, Nimish, towards the -- once lockdown started in the second fortnight of March, our -- typically our cutoff date is in the last week. And during this period, some of our dispatches to emerging market and India prescription business, the cutoff was unusually higher as compared to the usual year-end cutoffs.

[Nimish Nagindas Mehta, Research Analyst]

I mean generally you see good growth, let's say, in India, we see a good growth of 10%, 13% this quarter itself.

[Kedar Upadhye, Global Chief Financial Officer]

No, we have seen the growth would have been much higher. If we're -- if we would have been able to dispatch whatever we wanted to dispatch, it would have been higher than that. So our plan was a little bit high than what we have demonstrated.

[Nimish Nagindas Mehta, Research Analyst]

It could have been unusually higher. But then how do you explain the EBITDA margin coming down? Because this is kind of getting normalized is what I understand because of the logistics issue had there not been a COVID-related situation, and it would have been a normal quarter for us. But -- so in that case, why has the margin been down?

[Kedar Upadhye, Global Chief Financial Officer]

Yes. So there are 2 factors, Nimish, that we explained. One is that the margin on these cut offs is higher than the company margins. And if you sort of adjust it back, then the gross margin steps up significantly. And in the cost, we said that there are certain remediation charges for the Goa that we have fast tracked. So most of the remediation charges have been booked in this quarter. So these are the 2 reasons why the EBITDA margin for the quarter looks a little bit lower.

[Nimish Nagindas Mehta, Research Analyst]

Okay, understood. Next question is about the Proventil and ProAir, you mentioned that these are interchangeable markets. What exactly is the difference within these 2 products. My understanding was that there is -- the device itself is different, if you can correct me? So why are 2 products, the NDAs are different? What exactly is the difference and why do we still interchange it?

[Umang Vohra, MD, Global CEO & Director]

Well, the products itself are different. They're all Albuterol. But they are packaged differently, the devices are different. And I think that's the reason that the 3 products are 3 brands on the market. It's like insulin, right? If you look at insulin, even insulin has so many for fast release, basal release, there so many insulins on the market even in the U.S. So the product itself are different.

[Nimish Nagindas Mehta, Research Analyst]

If the device is different, then do you think that it -- I mean it's a [indiscernible] only thing is it's a device...

[Umang Vohra, MD, Global CEO & Director]

No. I think there are 2 issues. I agree. I think I might know. I'm sorry, I interrupted. Or let me just wait. Why don't you finish your question? I'm sorry, I interrupted you.

[Nimish Nagindas Mehta, Research Analyst]

No, the only question was that if the device is different then still will it be an interchangeable market because device is a significant value addition to the overall product?

[Umang Vohra, MD, Global CEO & Director]

Yes. I think the question in the U.S. is how are prescriptions written? Are there written as Albuterol or by the brand? And it is our belief that significant share of the market is written as Albuterol and therefore as a substitute.

[Operator]

[Operator Instructions] The next question is from the line of Vishal Bi from Aviva Insurance.

[Vishal Biraia, Analyst]

Yes. Sir, on the OTC business in India, we were planning to introduce much many more products. So could you give some perspective. Are these the products -- are these new products? Or these are products that you plan to advance from generics -- trade generics to OTC as was the strategy?

[Umang Vohra, MD, Global CEO & Director]

Kedar, you want to take this.

[Kedar Upadhye, Global Chief Financial Officer]

Yes. So Vishal -- I mean there are 2 set of products. There are certain products which are -- which will be newly introduced by the consumer business. And we have 2, 3 areas in which we operate for the consumer business. Recently, considering the COVID, in fact, we introduced a sanitizer with the brand name Ciphands. And that has very wide acceptance in the month of March and April, we did really well on this product. But outside that, whatever products have high consumerization potential and which today are in the generics portfolio, we will be doing a sequential introduction through the consumer portfolio. And that has begun in the -- from the last 6 to 9 months or so. And the pickup in volumes, a little bit of bump up in prices. And the appeal has gone up. We also tracked some of the metrics that we try for consumer products and they look fairly good. So this is early response on this, Vishal. We will be sharing additional details as this shapes up in the coming months and quarters.

[Operator]

The next question is from the line of Nikhil Upadhyay from Securities Investment Management.

[Nikhil Upadhyay, Fund Manager]

Sir, my -- I have 2 questions. One is if you look at -- so now we prepaid a huge amount of debt. And as you said that we would be looking at generating more cash and looking at creating more cash revenues in a stronger way. So how do you think about deployment of this cash over the next 3 to 5 years? And parallelly, there is this enabling resolution, which we have also asked for. So how should we understand our ROC journey over the next 3, 4 years because cash accretion will remain strong for us?

[Kedar Upadhye, Global Chief Financial Officer]

Nikhil, good question. So this enabling resolution is just a carry forward of what we have been taking from the Board and shareholders for the last 3 years. And that it just means to arm us in case there is a large opportunity. So that's about that resolution. As far as the cash generation is concerned, see, we have this second installment of IV Tramadol opportunity in the U.S. to be repaid, and there is still some long-term loan on the balance sheet. And there are opportunities to deploy in the business, both for our branded business and organic CapEx. We keep looking at our capital allocation and deployment strategy very carefully. And we'll go by that, Nikhil. We do expect, I think what we have been doing is that both in the fixed capital and working capital, the optimization efforts have been very significant. And we'll keep looking at opportunities there in the coming quarters. And yes, I mean, every year, we have increased ROIC by more than 100, 150 basis points for the last 3 years. And that journey will continue. You should expect us to have higher ROC in the coming years.

[Nikhil Upadhyay, Fund Manager]

Sir, is there a targeted ROC that we plan to achieve in the next 3 to 5 years, which you can share with your -- the shareholders that probably this is where we want to bring our business? Because we are getting complex products with a better margin profile and the investment has already been happening. So what's the -- so as a takeaway, what should be our idea that 3 to 5 years, where the company plans to reach?

[Kedar Upadhye, Global Chief Financial Officer]

See, I would tell you that for the last 2, 3 years, we have shared that our ROC has increased by 300 basis points, and that's the historical record. Now coming in the -- I'm looking for the next 3 to 5 years, I think directionally, the journey is going to enhance the ROC. I wouldn't like to quantify now because there are various investments, which might be on the way and various business trajectory could be different. It will evolve very differently. There are risks and opportunities, both which are present. So I wouldn't quantify, but traditionally, our efforts are all to increase the ROC.

[Nikhil Upadhyay, Fund Manager]

And then just one bookkeeping question. So last Q2 and Q3, our U.S.-based business, we were mentioning that $130 million, $135 million should be the stable state revenue profile for us. This quarter, we've come to $118 million, $119 million. So is it like some one-off? Or -- so what should be the base revenue of U.S. business, which -- on which we will build up?

[Umang Vohra, MD, Global CEO & Director]

No, I think we've said that our U.S.-based business is around $120 million to 130 million in that range. So we'll continue to be in that range. And the opportunity such as Albuterol, will have an opportunity for us to meaningfully lift it up.

[Operator]

The next question is from the line of Krishnendu Saha from Quantum Mutual Fund.

[Krishnendu Saha, Vice President of Equity Research]

[indiscernible] Advair trials results were supposed to be out in March? So have we filed for that?

[Umang Vohra, MD, Global CEO & Director]

I'm sorry, I could not follow completely well. Could you repeat it, please?

[Krishnendu Saha, Vice President of Equity Research]

Yes. Sorry, I joined in a little bit late. So I'm just -- I might have missed it. So I'm just repeating. The Advair trials were -- results were supposed to be out in March. So post that have we filed for approval in the U.S.?

[Umang Vohra, MD, Global CEO & Director]

Yes. The filing is imminent. It is either going to be done -- well, we're just saying it is imminent, will probably be done in a day or 2.

[Krishnendu Saha, Vice President of Equity Research]

And time lines, what are you looking at for that?

[Umang Vohra, MD, Global CEO & Director]

Well, I think we don't have -- it depends on how the FDA reviews it. There is no IP around this at all. My guess is that I think -- for most respiratory products, you should pencil in around 18 to 24 months.

[Krishnendu Saha, Vice President of Equity Research]

Sure. And Kedar, what is the expenditure which is there for the plant remedial measures. Can you give maybe some figure, please?

[Kedar Upadhye, Global Chief Financial Officer]

Yes. I think we have spent some money on the consultants and additional charges. That's in the OpEx line, there is -- there are certain write-offs. I would say, put together, all of this would be about a percent or a little bit higher than a percent of revenues.

[Krishnendu Saha, Vice President of Equity Research]

A percentage higher than revenues, is it?

[Kedar Upadhye, Global Chief Financial Officer]

Correct, correct.

[Operator]

The next question is from the line of Surya Patra from PhillipCapital.

[Surya Narayan Patra, VP & Pharma Analyst]

Sir, just wanted to have a sense. So this -- whether the full impact of the COVID that was already seen in the fourth quarter or there is some impact that we should be seeing further in the first quarter? I'm asking this question means whether are you seeing further impact on the export side because of the kind of a long-term situation, various kind of lockdown situation in various part of the world, including India. And also both incremental benefit on the chronic side that we would have seen in the fourth quarter, there could be a relatively lower demand situation generally globally in the emerging market as well as in India. And third, even -- do you really worry about the kind of the acute therapy, which the season should be starting June or something like that? And the channel filling would have started by now for the rainy season for the acute season generally. So given all these factors, do you really see there could be a sequence in more impact of COVID that would be visible for Cipla?

[Umang Vohra, MD, Global CEO & Director]

Kedar, you can take it.

[Kedar Upadhye, Global Chief Financial Officer]

Yes. Yes. So see, we would avoid giving any forward guidance on financials. What we are doing is -- yes, what we're doing now -- I think you asked 2, 3 questions. What we are doing now in terms of supply ability to all our global markets is we are tracking basically the attendance in the plants, production activity, dispatches, order flow and cash collections. We are tracking important lead indicators to drive our business as a business continuity measure. And we do believe that our internal preparedness is very high. The inward supply chain is at the highest reliability now. And all of the things that I mentioned are at varying degrees. So plant by plant attendance, there is a different trend that we alluded to. Dispatches do have certain challenges, but subject to paying a little bit more to drivers, transporters and cargo and charters, we are able to, so I think domestic and export businesses to various geographies, there is a varying trend of supply ability. But we do believe that subject to a little bit of cost escalation, we will be able to handle the shipments. So this actually has to be moderated with respect to the credit and liquidity situation. For example, Umang has spoken about the hospital business. Now the liquidity there is a little bit lower. So you should certainly factor that the hospital supplies would be a little bit lower. So I think that's how we are taking it. We are almost taking it day by day, and we believe that we have a very robust process on the business continuity. Coming back to your next questions on the acute, we would like to watch the situation in the coming weeks because the season is all subject to the hygiene and the weather and everything. And as of now, it appears that it may not be at its peak, not that the demand will collapse totally, but the season may not be at its peak. So we have to watch it week-by-week now.

[Surya Narayan Patra, VP & Pharma Analyst]

Okay. Then second question on the cost optimization thing what you have mentioned. See, in fact, we have been there in the cost containing kind of mode in some time. And we have certainly seen a kind of improvement in the earning efficiency over last couple of year period. But I think in the recent period, by whatever one-off impact or something like that, despite having one-off positives, we are stuck somewhere in the margin -- in terms of margins. So do we see that, okay, we should really be kind of expanding here on? And if you can quantify also this Goa remediation cost that you mentioned, how much that should be something directionally on the margin front?

[Kedar Upadhye, Global Chief Financial Officer]

Yes. So as I said, both the profit margin and the ROC, directionally management's target remains to expand. As I said, for the last 2, 3 years we have expanded by 300 basis points, which is very meaningful at our scale. And in the coming days, also, that's going to be our target. This one-off that you referred are part of the pharma business. Once a while kind of inventories that you had built it as a forward cover. I think once a while, it will go for expiries. Nothing to defend the inefficiencies. We will work on it. But I think directionally, you should assume that the journey of margin expansion and return expansion will continue. And I think you asked a question on the Goa remediation between the OpEx line and between the material cost line, I think you should take about a percentage or so of revenue as the cost incurred in this quarter.

[Operator]

The next question is from the line of Kunal Dhamesha from [ Systematics ].

[Kunal Dhamesha, Former Analyst of Pharmaceuticals]

So the first question relates to the remdesivir opportunity, in terms of how much supply we can do, if you can throw some light. And another is on the Actemra. So I think we have in-licensing with Roche. So what is the agreement characteristics in terms of do we get the profit share? And are we also able to manufacture it or not, some light on that?

[Umang Vohra, MD, Global CEO & Director]

Okay. So Actemra, maybe I can take the comment on Tocilizumab. So, Tocilizumab, yes, we buy it from our partner. We don't manufacture it. It comes from the partner. And it's a licensing transaction, which is quite -- it's a licensing transaction like we've done for several other products. So we don't have a profit share or anything with that. And your first question was on which product? Sorry, I missed it.

[Kunal Dhamesha, Former Analyst of Pharmaceuticals]

Remdesivir. What could be our potential capacity?

[Umang Vohra, MD, Global CEO & Director]

Yes. So Remdesivir, it's still early days. I think right now, the licensing agreement is signed. I think all the companies are working with Gilead on a war footing basis to manufacture the product in the facilities in India.

[Kunal Dhamesha, Former Analyst of Pharmaceuticals]

Okay. But what Gilead has said in terms of the long lead time, so is it a possibility to reduce it somehow by chemistry improvement or process improvement?

[Umang Vohra, MD, Global CEO & Director]

Yes. I think we are all trying hard to get this to the market as soon as possible. And of course, everything will be backed by data in terms of how each of these molecules does, whether it's Tocilizumab or remdesivir, but yes, there is effort on to bring it to market as soon as we can.

[Operator]

The next question is from the line of Pratik from Nomura.

[Pratik Kholkar;Nomura;Analyst]

I just have one small question that we see that the depreciation charge for this quarter is on the higher side, it's INR 346 crore versus last year, it was INR 278 crore for the same quarter. So can you please explain why is this on the higher side?

[Kedar Upadhye, Global Chief Financial Officer]

Yes, Pratik, usually in the March quarter, we do examine our carrying values for recoverability. And wherever we feel they are not adequate, we have to impair them. So there's a marginal charge that we have booked this quarter.

[Pratik Kholkar;Nomura;Analyst]

Okay. But so you said this is specifically for March quarter, right? So -- okay. So last year-end March, again, the depreciation of it was higher.

[Kedar Upadhye, Global Chief Financial Officer]

Yes, yes. So I think that is one factor. Plus, as you are aware, I mean, this year onwards, Ind AS 116, which is the lease accounting has got triggered in. So I think earlier, rental charges, which were booked in the OpEx line are part of the depreciation and amortization line. So there's been these 2 factors, which are accounting for the increase.

[Pratik Kholkar;Nomura;Analyst]

So quarter on quarter increase is mostly due to impairment because in Ind AS 116 was even in last quarter, right?

[Kedar Upadhye, Global Chief Financial Officer]

Yes. If you're doing a Y-o-Y comparison, then this will be applicable. But for sequential, you're right, that will be only due to impairment.

[Operator]

Thank you. Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to the management for closing comments.

[Naveen Bansal, Investor Relations Executive]

Thank you, everyone, for joining us on the call today. In case you have any follow-on questions, please feel free to reach out to me or you can write to us at [e-mail]. So thank you again for joining us on the call today. Stay safe, and have a very good evening. Thank you.

[Operator]

Thank you. Ladies and gentlemen, on behalf of Kotak Securities Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.