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Eris Lifesciences Ltd
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Ladies and gentlemen, good day and welcome to the Q1 FY '24 Earnings Conference Call of Eris Lifesciences Limited.We have with us on the call today Mr. Amit Bakshi, Chairman and Managing Director; and Mr. V. Krishnakumar, Chief Operating Officer and Executive Director. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. V. Krishnakumar, Chief Operating Officer and Executive Director of the company. Thank you. And over to you, sir.
Thank you. Good afternoon, and welcome to our conference call for the first quarter of FY '24.Our branded formulations business accounts for 97% of our consolidated revenue, and this includes the standalone entity, Eris Lifesciences, it includes Oaknet Healthcare, our insulin business, Eris MJ, Eris Therapeutics, which houses our Gujarat facility commercialized in March and Aprica. This segment excludes EHPL.The operating revenue for our branded formulations segment grew by 21% year-on-year to INR 455 crores in quarter 1. The segment EBITDA was INR 168 crores, which represents a 37% margin and a 30% year-on-year growth. Our consolidated operating revenue grew by 17% to INR 467 crores. This includes our trade generic business, EHPL as well. The consolidated EBITDA margin has bounced back to 36% plus in the first quarter, up from 32% last year.During the quarter, we have reduced our net debt by INR 102 crores, resulting in a net debt position of INR 672 crores as on 30 June, down from INR 774 crores as on 31 March. Our business model continues to be highly cash accretive, with an operating cash flow to EBITDA ratio of around 70% for the quarter.I wish to recap how the strategic investments we made in financial year '23 and prior has started demonstrating impact this year. Last year, we had invested INR 1,265 crores in the acquisition of Oaknet, Glenmark brands and Reddy's brands, all of which were margin dilutive last year. Happy to report that we've turned this around in less than a year, with Q1 EBITDA margin of the acquired business getting close to our overall branded formulations segment margin. We expect a 35% EBITDA margin for this piece in FY '24, up from 24% last year and 10% at the time of acquisition.Our second major investment in the last financial year was our injectable diabetes franchise, which clocked the first year revenue of INR 17 crores, along with an EBITDA burn of INR 20 crores. This business is on track for a revenue of INR 50 crores this year and we expect EBITDA breakeven by quarter four of this financial year. Phase III clinical trials of Glargine and Liraglutide from MJ's pipeline are complete, and we expect a commercial launch in quarter 4 of this year.Last year, we also launched our own R&D program, focused on developing first-in-market combination with an initial identified investment of INR 30 crores. We now have an active pipeline of 10 combinations in diabetes, cardiology and urology. 4 of these are in clinical trials and will be launched later this year. The remaining 6 will be launched in financial year '25.We also took calculated decision to participate in at-risk opportunities like Sacubitril, Valsartan, FCM Injection, and Linagliptin. Of these, Zayo, our brand of Sacubitril, Valsartan, has already been relaunched in January and FCM and Linagliptin are opening up for relaunch in Q2. Our investment of INR 230-plus crores in the Guwahati facility and the commercialization of our derma block in quarter 4 will start delivering significant margin benefits later this year.We have successfully completed the operational integration of Oaknet into our mainstream. This has started demonstrating tangible benefits from quarter 1 itself. You might recall that we had acquired the Glenmark and Reddy's brands without any field force. Q1 marked the first quarter of these brands being handled by Eris' field force and Eris' stockists network. And we've retained 75% of the sales through this transition.We expect to capture 100% of the sales from these brands starting quarter 2. We remain excited about the growth prospects from the dermatology business in this financial year and beyond. Our strategic priority for this financial year is to accelerate our organic growth trajectory and expand our covered market. The detailed initiatives in this regard are available in our Investor Presentation.We are now happy to open up for questions.
[Operator Instructions] We have the first question from the line of Mitesh Shah from Nirmal Bang Securities.
Yes. And congratulations for the strong numbers. My question is mainly to your operational locations. I think one of the best gross margins you have reported, which will be 83%. Again, the staff cost was substantially high and the other expenditures has reduced. Can you guide us that how would we see over a period of time and specifically for FY '24? And also interest rate has substantially increased. So what would be your target net debt for end of the FY '24? And in depreciation, this would be a right number to be looked at for the entire year?
So depreciation will be to the tune of INR 40 crores, INR 41 crores per quarter. As you've seen this quarter, that will be consistent. So, you can look at the depreciation plus amortization of around INR 160 crores for the year. As regards our position on debt repayment, it remains the same as what we said last quarter. So, we are targeting to get to below INR 400 crores net debt by the end of the year. And as far as margins are concerned, so we are looking at an EBITDA margin of 35% or thereabouts this year.
So was there any particular reason for such strong gross margins?
Mr. Shah, I'm sorry to interrupt. Sir, can you please use your handset to ask question please? Your audio is not clear, sir.
Can you hear me now?
Sir, still there is a disturbance.
I'll come back in the queue.
No sir, you can ask question. Now it is better.
Yes. So, I just want to understand about the gross margins -- strong gross margins. So can we expect the similar gross margin going forward? And what is the reason for it, strong growth?
So gross margin is an outcome of product mix and....
Some softening of costs.
There is some softening of costs. There is some of the new products that were launched at lower gross margins. They scale up. So the gross margin improves. So, there are a lot of those factors playing out.
Got it. And in this particular year, we reported around....
We don't expect it to be at 84% by the end of the year. We are more comfortable at around 82%.
Got it. And the 36% already we achieved this margin, then we are still believing that the contribution of acquired portfolio will be coming hopefully from 2H. Can we expect more than a 35% margin by the end of '24?
Mitesh, this year will be an unprecedented year for us in terms of new launches. If you go through the slides, we have just mentioned how many new launches are being planned. And our R&D kind of is kicking up the products now. We are having 2 mother brands coming in. Plus, there is a lot of investments, which will happen in the dermatology business. We just launched 2 very exciting products actually, first in time. So, I'm keeping that margin with us because there would be new products and new investments going in. So, that's the thinking as of now, but it will evolve as we go forward in the year.
[Operator Instructions] The next question is from the line of Rahul Jeewani from IIFL Securities Limited.
Yes. Sir, can you comment on how our organic portfolio would have done in terms of growth during the quarter, excluding the derma acquisitions which we did?
So, Rahul, I think we had a market beating growth again. The season was quite depressed in the first quarter. And I think what is happening, when most of the growth is coming from the price hike, as well as NI, we will -- progressively seeing the first quarters being depressed across. Last year also, if you remember, in the first quarter volumes were definitely up 2% to 3%.Am I right, KK?
Yes, the [ March wave ] as per the....
Of course, as per the [ year last ]. So the first quarter remained depressed, but we were quite high on our growth. We are like a high single-digit growth, very close to the double digit on an organic piece.
So, sir, you are referring to...
I'm happy to maintain that we should be 400 basis points above the market.
Sure, sir. So, sir, this high single-digit to low double-digit growth you are saying we achieved during the quarter?
Yes. I'm saying the low-digit -- low-single digit was the market and we received -- we did a high single digit. So, there was a good gap in the first quarter and we expect this to keep up. Also remember, post Q2 when the at-risk launches get regularized, there's a lot of primary sales which will start coming, which we had not been booking in the last couple of quarters.
Sure, sir. And any guidance for the full year in terms of how you are looking at the growth on the organic business? So should we start inching up towards a low double-digit kind of a number by the end of the year with the launches, which you have in terms of Glargine, Liraglutide and then the 4 own R&D products also which you are targeting?
Yes, Rahul, that will be fair to assume. The only caveat is we have to see, as always, how the market behaves. But this year, we should be at least 400 basis points ahead of the market. And market now, in our view, would end up at around that 8% at least, 8% to 9%. So what you're saying is actually true.
Okay, sir. And with we having a very strong pipeline of launches going into second half of this year and typically, we have seen that in the past, whenever we do these new launches, our gross margins tend to be on the lower side. So second half, our EBITDA margin profile could be slightly lower than what we do in first half of this year?
That is what we expect as of now. That is the reason the guidance is more at 35% by the end of the year and the gross margin maybe 200 basis point lower than the first quarter. So, that is what we expect.
[Operator Instructions] We'll take the next question from the line of Mehul Sheth from Axis Capital.
Yes. Sir, first question is on your -- the 10 molecules that you have highlighted, it will be getting launched over next 2 years in your investment of around INR 30 crores on an aggregate basis. So can you talk something more on, like, which all molecules are like FDCs, but which all molecules you are targeting on a -- across like diabetes and all?
Yes. So, see -- you see there is a slide, where we are talking a little bit of a detail, we can't do it in public domain, but we still can't talk about it. So, there are couple in diabetes, there is couple in diabetes complication, there are couple in cardiovascular and there are some in dermatology. But the products are quite exciting, and we feel that we will have some kind of exclusivity for some time because we've been filing from our side. The good thing is that 2 of our products, the Phase III is now completed and we are going towards submission.
Okay. And sir, on this INR 30 crores investment, what would be your expectation over, let's say, mid to long term, like, what kind of revenue you can generate from this?
This INR 30 crores -- we haven't thought it that way that what will be the -- because, typically, this is a long cycle, though, the brands keep on growing over a period of time. So, we have really not thought about that. But if I have to tell you something, I think all these brands which you are talking about have at least a runway of INR 8 crores to INR 10 crores in the first 12 months to 18 months.
Okay. And sir, one more question, more of a bookkeeping kind. So what would be your tax rate guidance? Like right now, you're at 17%. But what could be for next, say, at least 2 years, '25 and '26, your tax rate?
For this year, it will be around 14% to 16%, for the current year. Next year, we'll update you later.
[Operator Instructions] We'll take the next question from the line of Nikhil Mathur from HDFC Mutual Fund.
Yes. I'm audible, right?
Yes, sir.
Yes, very much.
Yes. Sir, this INR 30 crores spend that we're talking about, just wanted to check, in a normal year, what is the spend like, comparable spend?
So, we don't have a comparable as of now, no? But it is a little difficult to kind of put a number to it because we had been putting money on outside invest -- sorry, outside manufacturers also. So, it is not that we were not doing it, but we were not doing it on our own. So right now, you don't expect that this INR 30 crores will be out of what we have been doing. So, this is very much a part of what we do organically.
Okay. So I mean, looking ahead, this sort of spend should continue, right, I mean, as we will keep doing R&D on multiple products and segments?
Yes. Look, we always had a strength. When we went to IPO, we were talking about applied research and we have, to our credit, a lot of product which we've got first time. They are not novel, but they are good -- reasonably good, clinically effective FDCs. And we are kind of putting excluded around that. So right now we have 10 candidates, out of which 5 has already been submitted. And 5 will be submitted over the period of time. And yes, we are hiring more people. We want to strengthen this piece because in the era where the unit growth is little sober, if I could use that word, we would need more and more NIs in the future. So recognizing that last year, we actually had a good committed team on this.
Right. And can you give some sense on the combined market size of these 10 opportunities and in how many years or months do you tend to achieve the optimum market share?
So, typically, if you look at a cycle of the brand, it is the third year where it basically gets to a good reasonable size. And from there, the growth is more or less linked to the market. So the first 3 years will be a little unconventional. So like what we are launching in the next 2 months, say, September and October, is a combination of anti-diabetic.It's a Dapa combination with the sulfonylurea, which we have put in, and we have got the approval also. But typically speaking, Dapa is INR 1,000 crores market. The SU has another INR 500 crore, INR 600 crores market. Now, we think there's a lot of sense in putting it together. So as I said in the last call, it will be fair to expect INR 8 crores to INR 10 crores per brand because we don't take the brand unless and until at least we are sure that it will give us INR 8 crores to INR 10 crores during the 12 months to 18 months period.So, all these products have been planned that number at least. I mean, of course, we will go to the market and see what happens. But as our plan, it will all be INR 8 crores to INR 10 crores. We will be possibly having them in a better gross margin situation because they are developed inside. So, therefore, that premium which you pay for the first 6 months, 9 months would be reduced. So all put together, from a commercial point of view, we find this very, very interesting, when we compare it to in-licensing or we compare it to acquisition or anything where you have to pay an upfront fee.
Okay. And sir, on the margin front, now Oaknet is still in a situation where the margins will continue to improve. I mean, last year you did 25%. This year guidance is, I think, 35%, 36%. So I believe that 1Q, it would not -- the derma business would not have still reached the optimum margins because the acquired brands have to be fully integrated yet. And also you are pointing towards standalone organic growth being better in the coming quarters. So, I'm just wondering, both these tailwinds will get fully offset by the INR 30 crores spend and some bit of gross margin dilution, which you are saying will happen in the coming quarters. So it will get fully offset. I am trying to understand.
Okay. Are you asking me that this INR 30 crores, will it poke a hole in the overall EBITDA, is that your question?
Yes. INR 30 crores, plus gross margin -- some bit of gross margin addition by a percentage point. Both these factors will fully offset the margin gains that we'll be getting from the derma business ramp-up and also standalone group doing better?
Okay. So we haven't thought it as deep, but what will happen is actually, our derma piece will start -- let me give you a number. In July, the derma -- the Oaknet piece actually grew by 6%. Am I right, Kruti?
Yes.
So it was de-growing in the first quarter. And in July, it has grown by 6%. And without being passionate, let me tell you when we take brands without people and without distribution, this is a good performance in my view, getting business back in 3 months' time because most of this -- both of these acquisitions were last year, last quarter. Now, where will the -- why am I not committing to a higher number? Because I am very, very clear on growth.We feel that we can gobble up a lot of growth. Therefore, we don't want to commit too much on the margins. We would stick to a 35% kind of a margin and look for more growth revenues because by now all of us sudden understand that once the growth is in place, the margins do follow. So last year, you saw, we were 32% and then many of us were a little kind of hesitant in believing that it could be turned around in a small period of time. So, we are following growth with a very good margin. There is an upside, but we would like to use that in growth rather than getting a higher margin.
Understood, sir. Very well understood. And sir, one final question. Slightly bookkeeping in nature. The past acquisitions, debt amortization would still be sitting in the P&L, right? I mean are we close to a bit of amortization going off the books, of some assets getting fully amortized?
No, the entire amortization -- the amortization is entirely in the books of Eris for brands.
Nikhil, the amortization is not expected to go down in the next few years.
Excuse me, ma'am. I'm sorry to interrupt. Ma'am, your audio is too low.
Nikhil, this is Kruti. So the amortization and depreciation, we are not expecting it to go down in the next couple of years. So the run rate for Q1 and FY '24 that we just told you is expected to continue for '25 and '26 also.
Okay. And what are the CapEx needs for this year?
There are no CapEx needs for this year. It will be just routine maintenance CapEx, which is 2% to 3% of gross book. Otherwise all CapEx has gone in.
Got it. I have my questions answered.
The next question is from the line of Bino Pathiparampil from Elara Capital.
Most of my questions have been answered. Just on this depreciation and amortization, it's a pretty large Y-o-Y and Q-o-Q jump, is it all because of the amortization of acquisitions?
Yes, that is right. So there are 2 components, just to be completely complete. One is there is a new manufacturing facility that got commissioned in March. But that's a minor component of the jump. The major component of the jump is from the acquisitions.
Understood. So, this is the new [Technical Difficulty]. Okay.
The next question is from the line of Neelam Punjabi from Perpetuity Ventures.
Yes. And congratulations on some good set of numbers. My first question is on the YPM. So on a per-month basis, it's had about INR 5 lakh for Q1. And if I look at your chronic-focused peers, the YPM goes as high as INR 7 lakhs to INR 8 lakhs. So over the next 3 years to 4 years, are we looking to bridge this gap? Or is this number the sustainable number?
So, madam, the YPM depends upon the addition of number of people. If we add more number of people, it dilutes. And while you are absolutely right, there are lot of chronic peers whose YPM is much higher. They are even at around INR 8 lakhs, INR 9 lakhs, INR 10 lakhs also. But that is also a factor of time. So, we being still relatively a younger company, we had more divisions. And because there are lot of products, which we are planning to launch, so that basically will build up YPM. So, we are planning to get to the same level of YPM at some point of time, and these new products will only help to aid that.
Got it. That's helpful. And secondly, my question is on your PAT. So if I look at the last 8 quarters on a trailing 12-month basis, our PAT has been largely flat and of course, this is due to the acquisitions and the costs that have been associated with it. But going forward, over the next 2 years to 3 years, can we start seeing some PAT growth with the top line growth and margin expansion playing out?
Yes. In fact, as you pointed out, the acquisitions were dilutive last year. But they are not supposed to be dilutive this year. So, we can look forward to a PAT growth by the end of the year, which will only continue and accelerate in the coming years.
Got it. Okay. And last question is on trade generics. If you could highlight what was the trade generics revenue during the quarter?
Yes. So it was -- I mean, so you see that on a -- you see a growth -- a better growth in the branded business than the consol, which basically excludes the EHPL. So EHPL growth -- the trade generic growth has been compromised in the first quarter. And that is what we have kind of given a heads up to everybody also.
The next question is from the line of Harshal Patil from Mirae Asset.
Sir, most of the questions are answered. Just need one clarification with respect to the interest cost. We did say that the net debt has come down, but our overall finance cost for the quarter has gone up. So I mean, if there is anything that I've missed in the commentary?
See, net debt has gone down because the repayments would have happened at the end of the quarter. So whatever the collection is, but the interest cost is -- by and large, compared to last year is high, but if you compare it to the last quarter, it's the same.
Okay. So the rate of interest you say is the same because I guess last quarter, we had about 88 million. And I think this quarter we are almost like 173 odd million.
Yes. Because this happens at the end of the March.
Yes. Right.
So would not [ be a ] component of that acquisition.
Okay. Got the point, sir. I got the point.
[Operator Instructions] The next question is from the line of Ankur from Quasar Capital.
Yes. Sir, just one question. Like how would you think about the rest of portfolio -- like some of the elements of the portfolio related to diabetes and cardio are obviously doing very well. So can you just take out some time to explain therapeutic area-wise that how are we doing, are there areas where we need to consolidate, are there areas we need to focus more? If that could be explained, it could be great.
Yes. So, that will be a broad-based question, but I'll try and answer as briefly I can. So if you look, we basically have our therapy areas divided into the conventional one and the newer therapy areas, which we call the emerging therapy areas. And as of now, dermatology has become a very important area for us, just standing next to the diabetes, cardio and the V&M. And that's one area which we are very positive about, especially we have some good launches and we are seeing a good traction in couple of brands which we had bought.So derma becomes the new segment for us. Having said that, this year we expect the V&M to do better than it has been doing because there are couple of launches which are exciting in that area also. So put together, we would rather like to see all segments growing up, but the speed, if you want to see the speed, depending upon the base, dermatology, V&M and women health will right be at the top.
Okay. And just one follow-up, like, just on a strategy basis, is the focus on focus to develop mother brands for each therapeutic area and focus on them? Or it is to take each and every therapeutic area and go with the widespread portfolio?
So we have been focused on mother brand, generally, because we have been a lot chronic. So chronic, what happens is a progressive disease situation. You need one new combination, then you need a double drug combination. So it has always been good to focus on the mother brands. And we continue to do that because we feel the spillover of the mother brand into the new SKUs also. So that continues.
Okay. And this wouldn't be the same in derma because like you mentioned in the last call that the products and that big market size, they'll be small market size products. So, we'll have to have a big variety of portfolio, right?
Yes. So what you're saying is right. The size of the brands are very different from a -- in diabetes and in dermatology. But the mother brand theory still remains.
Okay. So it's like an extension. The brand will continue and then it will be serving related to this thing. I'm just asking this from the point of view that whether this can help us in increasing the yield per employee. That is the [ matter ].
I'll give you the example. You will be able to better understand that. So, we had taken a brand called Demelan, say, from Glenmark. Now, Demelan came with one SKU. It is a depigmenting agent. Then we launched one more SKU last month, calling it LSA, basically for truncal melasma, the large surface area. We will be launching a Demelan face wash in the next quarter. So, we keep on harping on the mother brand and then spreading it to different disease areas or problem areas. So that's how generally the industry is.
The next question is from the line of Prashant Nair from Ambit Capital.
Yes. Just had a question on your M&A strategy or your thoughts going forward. So last year was quite busy on this front. Do you feel now you are where you want to be in terms of portfolio spread or key segments that you want to be in? Or are there still gaps that you would like to fill?
Yes, Prashant. So, we are little easy now on the M&A because the sum total of all the launches, which we think we will be doing is quite a bit. And it will also be -- a lot of it will also be sitting on the already acquired businesses. So in a way, the plate is full from a brand perspective. And beyond a point, we would not like to dilute the bandwidth also. So this year, we would be easy on the acquisition and this might extend to early next year also. Now the caveat is always that if there is something which is like just like path-breaking, which doesn't happens usually. So with that caveat, but yes, we are more or less done in the acquisition in the near future time.
Okay. And how do you see, with that in mind, balance sheet or debt levels change, do you have any targets in mind by when you expect to pay down?
So we are simply working. The first priority is to pay the debt and we've always maintained that. Every time we have declared a dividend, we have always maintained that if there is a debt, that becomes the first priority from the organization point of view. So most of the free cash would be going there. We don't have -- as KK just alluded to, we don't have a lot of CapEx coming in this year. So, last year was an investment year for us. So with little CapEx, the routine CapEx and no acquisition in sight, I'm not very willing also, so most of the money will go into serving the debt. We believe we should be in the vicinity of INR 700 crores, INR 720 crores EBITDA this year. So whatever free cash comes in will go in service of the debt.
[Operator Instructions] The next question is from the line of Neelam Punjabi from Perpetuity Ventures.
So for our Oaknet business last year, our full year number in terms of top line was INR 250 crores. And we had alluded to in our previous calls that this financial year we want to cross INR 400 crores for our derma franchise. So are we on track to achieve this year?
Madam, we are not giving individual number as of now. We are only giving consolidated numbers because all this has now become one. So lot of launches and everything is happening. So, we haven't really kind of taken it in that way. So the overall number with the guidance is around INR 2,000 crores, INR 2,100 crores and that would include everything actually.
Got it. Okay. But over the medium term, if you could give some outlook on how fast can the derma business as a whole grow? Is it a mid-teens kind of growth for us?
Please give us some time. We are just kind of putting everything together. As I told you, July was a good place. We had a 6% growth as per the AWACS. Moving from here, double-digit growth is for given. We are trying to see if we can improve on that.
Sure. Okay. And one last question on the EBITDA margin. So you mentioned that this year we are targeting about 35% EBITDA margins. Is this like a sustainable number? Or over the medium term with top line growth, can we expect some operating leverage to play out?
So you look at the past numbers. We've always been on that kind of a number. It was only a blip last year because of acquisition and investment cycles. So it's nothing new to the company. We've always been on those margins. And once the productivity goes in, the margins do inch up. And more than margins, we are interested in expansion of EBITDA. I think that's where we're focused on.
The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.
Yes. Sir, just to know therapy-wise number of MRs now with derma, cardiac separately and diabetes?
Tushar, the derma number remains at similar levels. Actually, we haven't added any MRs in Q1. So whatever numbers that you're running with, they pretty much remain similar levels.
Understood. Okay. And just if you could break the growth into price, volume, new launches?
Price?
We can have Kruti discuss that with you offline. We don't have the numbers handy.
But, Tushar, largely the growth will be on new product and price. The first 5 months are not very kind of encouraging from a volume growth perspective. But also remember, there is a trend in the last 2 years, where the second quarter onwards, the growth is picking up, largely because the price growth is generally coming more in the next -- in the second quarter onwards. So, volume-wise, if you look at the first 5months, not an encouraging sign in the IPM. If you ask us, we have been doing better than the IPM. But the details I think Kruti will give you offline.
Sure, sir. In fact, on the base portfolio, it's both -- in fact, I would like to have your thoughts in terms of, both at the industry, as well as at the company level, volume growth is relatively muted or subdued. So any specific reasons to highlight there?
I can't say really. I mean, it's strange that even I -- we don't have a complete answer. We can kind of -- peripherally, we can tell you something, but we don't have a concrete answer. We still remain -- we know how the first quarter has not been doing well. We have seen that -- we have kind of chartered that data right from pre-COVID levels. So, we understand that the Q1 is being -- is going to be a problem.It might be a problem even next year, and then it kind of eases out. So, there is a little bit of a skew in terms of growth quarter-on-quarter. But volume growth not coming in is a sign which we are all trying to sort out. But in the short and the medium term we want the other -- the NIs and the other things to do well. But having said that, chronic has still been faring better than everything else. So that's a good place to be in. Chronic, derma which is also largely chronic has been doing better than the rest of the industry.
The next question is from the line of Miten Lathia from Fractal Capital Investments.
Yes. [Technical Difficulty].
Sorry to interrupt. Sir, your audio is breaking. Could you please use your handset and come in the network area, so that we can hear you loud and clear?
Is this good?
Yes, sir. This is better. Please continue.
Yes. Just wanted to understand if there was a fair bit of seasonality to the derma portfolio or all four quarters are broadly given the same?
Yes. There is a substance of seasonality. Generally, the rainy season and post the rainy season, the fungal infections are on the rise. But then what happens, when you get into the winter season, it is the moisturizer and the dry skin which kind of balances that out. But technically speaking, the second quarter, that is July, August, September has typically been the biggest quarter for dermatology, overall industry.
And that would hold true for our portfolio as it stands right now?
Yes, it would because we have a large contribution from anti-fungal as of now. So it should hold.
The next question is from the line of Harshal Patil from Mirae Asset.
Just one thing. Since we're kind of focusing more on the 3 new emerging areas like derma, the CNS and this thing -- women's health. So, we've seen an increase in revenue contribution of these 3 new therapy areas. So is there any aspirational level like maybe 35%, 30% something that we have in our mind over the next 2 years from these new emerging areas?
From a growth perspective?
Yes, sir. So probably from the revenue contribution?
Revenue contribution?
Yes.
So, look, lower base will do better. That is for given. We haven't actually jotted down that over the years what will be the contribution, but right now for this year, this year the plan is [ 6 %].
Currently, we are at 26%.
Yes. Currently, we're at 26%. So the contribution will inch up, but we haven't really put that number into the block to give you an accurate answer.
Got that, sir. And amongst the 3, derma, I guess, would be a fastest-growing segment?
Yes. We wish and we want from both of us. So the first quarter had this acquisition kind of an overhang. Once it is done, we expect derma to -- in fact, we are quite excited for derma, to be very frank with you. And we've had a couple of very good launches. We just launched something for the first time in India, 3 of us, and that is a Minoxidil Booster.Now, Minoxidil is a very large market for alopecia, the hair loss. And it was like 60% of the people who are not getting gains from Minoxidil because of an enzyme lacking. So we just launched a product, innovative product this one coming from the US, I think. We just hit the market. So, we are quite excited and we are hitting with a very good moisturizer by the month end again. So, our plate is quite full on that side and we are enjoying dermatology as of now.
The next question is from the line of Mehul Sheth from Axis Capital.
Sir, one question on other expenses.
I'm sorry to interrupt, sir, your audio is feeble. There is a lot of disturbance at your background. Can you please come to a quieter place and talk?
Yes. So now it's clear?
Yes, sir. Please continue.
So, my question was on other expenses side, which is lower on a sequential basis. So any specific reason for that? And what could be the quarterly run rate from here?
First quarter, lower number of launches, little sluggish market. So, we would like to kind of put it together. So the expenditure has been very linear to the number of new introductions. So in the first quarter, there were not so many. They started in July. So that's the clear-cut reason.
Okay, sir. One last question on your, like Linagliptin launch on post-patent expiry. So what are your expectations on that? And any other such pipeline or opportunity, you have any visibility on that -- like there in products?
You know we can't talk about this. If there is anything -- I mean, there is nothing as of now, but even if there is something, which we can't talk about it. But what I would request is please understand the model, how do we approach it. Even I would not be able to say anything on Lina, because as of now it remains the way it is, but I can just tell you that FCM, we've got a favorable order yesterday, so yesterday or day before yesterday.So out of 4 what we have attempted, in 2 such things, we've got a favorable judgment. One is the Dapagliflozin, and now the Dapagliflozin franchise is like INR 50 crores, INR 60 crores for us on a run rate basis, bigger than that. And the second is FCM, which we launch with [ Viatris ], but I think we've got the judgment in our favor. So this market will now open up. So that's the nature of this beast.
We'll take the next question from the line of Ankur from Quasar Capital.
Yes, sir. Sir, I was just going through this first-in-market combination R&D pipeline. So, sir, like, can you explain whether this is going to be, like, we will enjoy any 3-year patent period, or because of the combination that won't be possible? It is just that the first-mover advantage will be there to us?
Yes. The first-mover advantage is a little elongated now. It takes a couple of months for the other people to join the queue. So the first mover gets a little bit elongated, but it is not that 3-year period where we have done a study to patent. So, that's not the case here. They are all replicable depending upon -- I mean, it will take some time. The advantage could be as less than 3 months and sometimes as big as 6 months depending upon what the other people have to do.
Okay. Sure. And this INR 30 crores investment, like this goes into the team, the filings, like, or is it like a yearly setup that this is now earmarked for the R&D pipeline?
No, it's like INR 3 crores of product, generally speaking, INR 3 crores of product. And most of the money goes into a Phase III clinical trial. Generally, in the FDCs, we do get around 250 to 300 patients to be on the trial. So, everything -- the major cost is in Phase III.
We'll take the next question from the line of Jainil Shah from JM Financials.
I just need a clarification on the insulin guidance that we've given for FY '24. So the INR 50 crores number, will it include Liraglutide combination launch in 4Q?
Yes. As of now, we have considered that. And as of now with what we can see today, it should happen, but always there could be -- these are new products. There are certain things which happen at the last moment. So we can always -- we do estimate a slip here and there, but as of now the visibility is yes.
Okay. And what's the outlook for FY '25? And what's the strategy around insulin Glargine, given that we also have a licensing agreement with Biocon?
Give us some time for FY '25. We haven't really put our heads together there because the Glargine, when it comes from MJ, is going to be very different for us. And that is the time we need to go back to the drawing board and plan ourself, but you know Glargine is a very big opportunity. Till this point of time, we have been doing a very, very reasonable kind of a number. And our margins are quite stiff actually. So once the MJ happens, then we would rather kind of put the foot on the accelerator. So it will take some time. '25 is a little far in our head. We need to sit and do.
Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Mr. V. Krishnakumar for closing comments. Over to you, sir.
Thank you.By way of summary, our branded formulations revenue grew at 21% this quarter, with a 30% growth in EBITDA. Our consolidated revenue grew at 17% this quarter, with a 31% growth in EBITDA. All strategic investments made in the last financial year have started delivering tangible and measurable results starting with Q1 of this year. Our strategic priority for this year is to accelerate our organic growth and expand our covered market.Thank you for your participation in the call, and have a good evening.
Thank you very much, sir. Thank you, members of the management.Ladies and gentlemen, on behalf of Eris Lifesciences Limited, that concludes this conference. We thank you for joining us. And you may now disconnect your lines. Thank you.