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Gland Pharma Ltd
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Ladies and gentlemen, good day, and welcome to the Gland Pharma Limited Q2 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sumanta Bajpayee from Gland Pharma Limited. Thank you, and over to you, sir.
Thank you, for that. Good evening and warm welcome to Gland Pharma's Earnings Conference Call for Second Quarter of Financial Year '23. I have with me Mr. Srinivas Sadu, MD and CEO; Mr. Ravi Mitra, CFO, to discuss business performance and to answer queries during the call. We will begin the call with business highlights and overview by Mr. Sadu, followed by financial overview by Mr. Mitra. After opening remarks from the management, operator will open the bridge for Q&A session.
Before we proceed with the call, please note some of the statements made in today's discussion may be forward-looking and based on management estimates, and this must be viewed in conjunction with risks and uncertainties involved in our business. The safe harbor language contained in our press release also pertains to this conference call. This call is being recorded, and the playback of the call shall be made available on our website, shortly after the call. The profit of the call will be submitted to the stock exchanges and will be uploaded in our website. I will now hand over the call to Mr. Sadu for his opening remarks. Thank you all. Over to you, Mr. Sadu.
Thank you, Mr. Sumanta. Good evening, everyone. Thank you for joining our earnings call for the second quarter of fiscal 2023. My fetishes to all our shareholders, analysts and their families. Last quarter saw heightened economic uncertainty globally. After a tough start to the year, while we continue to see some supply chain disruptions and long lead times for several processing and primary materials, we saw improvement in supplies in the second half of this quarter and have much better visibility on our key material supplies. Our efforts on easing the supply chain by qualifying additional vendors and additional lines for manufacturing are also starting to show results. Commercial production of insulin restarted during the second half of the quarter.
I'm pleased to announce that our new offices at the U.S. and Singapore are now operational. This expansion is aimed at strengthening existing customer relationships, forming new partnerships in target markets to drive growth while aligning our internal product pipeline strategy with our customers' feedback and also help us investigating some of the supply chain disruptions in the future. This initiative will also allow us to explore partnerships to accelerate our entry into the biologic biosimilar CDM space.
We had our first physical U.S. FDA pre appoint inspection audit since covid outbreak within 22nd August to 25th August at our legal facility. We received one observation from the audit and our teams have already responded to the observation. I'm satisfied with the preparedness of our teams across all our sites for any regulatory audit.
We closed this quarter Q2 FY '23 with a revenue of INR 1,444 million as against INR 1,805 million in Q2 FY '22, and our PAT stood at INR 2,412 million for the quarter against INR 3,021 million in Q2 FY '22. We have generated INR 26 million of cash flow from operations in Q2 FY '23. The delay in material supplies impacted volumes for certain products and the observed impact from price erosion in some of our recent launches. Our robust business model gives us the flexibility to onboard multiple customers for single molecule, which is helping us maintain strong market share from key molecules. Our strength of handling manufacturing of high-volume injectable products and compliance track record has enabled us to stand out from competition.
We managed to launch 6 product SKUs during the quarter, which included bumetanide in the U.S. and bortezomib in the European market. We also launched other products, including oxaliplatin in the Canadian market. We continue to make investments in R&D, and we're able to complete 6 ANDA filings during Q2 FY '23, in line with our plan. The filings will further accelerate in the second half of the fiscal year. We are receiving encouraging feedback from China. It should help us increase our pace of China filings as well over the next year.
During Q2 FY '23, upon excluding capital R&D expenditure, the R&D expenditure stands at 3.8% of our revenue for the period, in line with our historical trend. As of 30th September 2022, we, along with our partners, have 322 ANDA filings in the U.S. and 1,586 product registrations globally. We have onboarded some senior executives during the quarter to strengthen our planned operations and some execs function. We are further looking for talent to strengthen our biotech manufacturing capabilities.
Let me summarize our performance across various geographies. Our resale markets accounted for 21% of our Q2 FY '20 revenue, similar to the contribution in Q2 FY '22. The material supply time lines have improved and we have better visibility now. We are building inventory to support the demand. We used our products, esomeprazole, melphalan and labetalol in new geographies during the quarter. Our key markets continue to remain MENA, LATAM and APAC.
Our core markets, namely U.S., Canada, Europe and Australia accounted for 72% of our revenue during Q2 FY '23 as against 67% during Q2 FY '22. We continue to focus on building a niche portfolio in our core markets, although we have seen increased competition in our new products, we remain confident of our launch pipeline that will ensure sustainable growth in the market. India market accounts of 7% of our Q2 FY '20 revenue. We restarted including dispatches in the second half of the quarter.
The sales for Q2 FY '23 were lower when compared to 20 FY '22 and account of absence of covid-related product sales. Increased rate costs in addition to supply chain disruptions have not only impacted our ability to compete in ROW and India business, but also contributed negatively on our margins. Smoothening of the supply should help us negate some of these impacts in the coming quarters. Sustainable growth has been our focus. The monetary tiding has impacted valuations globally, and we continue to use this to our advantage to aggressively scout for inorganic opportunities.
On the geographic growth, China remains a key geographic focus, and we expect to start tracing approvals during the current year. And the portfolio is plan, we expect another 2 complex filings in the current fiscal and have completed installation of manufacturing lines for suspensions and hormones. On the biosimilar CDMO business, we have completed several customer visits during H1 FY '23, and few of those have moved to the stage of commercial negotiations.
We signed up a fill/finished clinical batch project and discussing on the [ GES ] project commercials as well. Positive momentum is seen in the biologics/biosimilar CDMO space. With this, I wish everyone good health. I would like to now hand over the call to our CFO, Mr. Ravi Mitra, who will share details about our financial performance for the quarter. Thank you, over to you, Mr. Mitra.
Thank you, Mr. Sadu. Good evening, everyone. Thank you very much for attending our second quarter earnings call. Our earnings presentation has been submitted to the stock exchanges and is also available on our website. Let me begin with sharing the financial performance of second quarter and first half of financial year '22/'23.
Revenue from operations for the quarter of FY '23 stood at INR 1,444 million, a reduction of 3% on a year-on-year basis. We have seen revenues from core markets and ROW market has come back to normalcy and is in line with the second quarter of previous year. We have witnessed 22% increase in revenue as compared to previous quarter. Revenue from operations for the first 6 months of fiscal '23 stood at INR 19,130 million, a year-on-year decrease of 15% due to various reasons impacting first quarter of current fiscal year.
Other income for the second quarter was INR 656 million, which includes interest and fixed deposit of INR 468 million and foreign exchange gains and operations of INR 181 million. For the H1 FY '23, the other income was INR 1,400 million, of which, interest on fixed deposit of INR 844 million and foreign exchange gains and operation of INR 523 million.
Gross margin of the company remained stable in both Q2 and H1 as compared to same period of previous financial year, but reduced quarter-on-quarter sequentially, largely due to change in geography mix and product mix. We have reported an EBITDA of INR 3,625 million in Q2 FY '23. Compared to INR 4,278 million, which is a decrease of 15% compared to same period last financial year.
EBITDA margin for Q2 FY '22 stood at 33% as compared to 38% of the same period of previous financial year. Increased operating expenses such as higher logistic costs due to use of air shipments and certain onetime expenses impacted EBITDA margin of the company during the quarter. With normalization of inventory of certain critical items, we expect freight to come down with more sea shipments going forward.
During the first half of the year, we managed to maintain similar gross margin, but EBITDA margin reduced due to higher power costs, employee costs and account of increased headcount for biologics and biosimilar CDMO facility. New commercial lines in Pashamylaram and for Vizag facility and other operating expenses. EBITDA for the 6 months ended September 2022 was INR 7,068 million compared to INR 9,259 million for the same period last year.
We have reported EBITDA margin for H1 at 35%. Our net profit for second quarter decreased by 20% and stood at INR 2,412 million compared to Q2 FY '22. During the quarter, we have recorded PAT margin of 22%. During the 6 months period of the current financial year, our PAT was INR 4,704 million at 23% margin.
The total revenue, R&D expenses for the second quarter was INR 394 million and stands at 3.8% of the revenue as against INR 362 million of 3.3% of revenue and year-on-year growth of 9%. The total revenue, R&D expenses for the 6 months period was INR 743 million, it is 3.9% of our revenue.
Our effective tax rate remains at about 26% in second quarter and for the first half of the current financial year. Cash flow from operation during 6 months period was INR 3,956 million. Working capital increased and stood at INR 21,036 million as on 30th September 2022 as compared to INR 20,217 million as on 31st March 2022 due to increasing inventory levels.
Average cash conversion cycle stood at 231 days for the 6 months ending September 2022 as compared to 198 days of same period last financial year. The increased receivable and inventory days has pushed up the overall cash conversion cycle. Total CapEx incurred during 6 months was INR 825 million used for increasing capacity at our Pashamylaram and Vizag API facility and for routine maintenance CapEx.
Our ROCE on ex cash basis was at 21% on an annualized basis for the 6-month period of this fiscal year. Our fixed assets turnover stood at 2.4x for H1 FY '23, decreased from 3.4x for the same period last year. As of September 2022, we had a total INR 38,200 million of cash and bank balances, which we intend to utilize for the CapEx plan and to fund our inorganic growth strategies. With this, I would request the moderator to open the lines for questions. Thank you.
[Operator Instructions] The first question is from the line of Neha Manpuria from Bank of America.
My first question is on the U.S. numbers that we have reported in this quarter. It seems that overall the sales were pretty much flat. As you mentioned in your opening remarks that we have seen competition in some of the recent launches. So could you give us some color on what's the pricing pressure that we are seeing there? And how should we look at growth in this business as we go forward?
Yes, good evening. Yes, as you compare to last year, I think it remains flat, I mean you actually to consider larger there were sales which are correlated. That's kind of gone down. From the pricing pressure perspective, if you look at our gross margin level, still they are intact. So, I think the EBITDA margin impacted most on the cost side, which has impacted the bottom line.
So from a growth perspective, we have launched 7 products last quarter. There is a plan to launch 11 products next quarter as well. I think it is depending on the size of the molecules, which quarter gets launched that's where the grid growth comes from. So we are not committed to giving any numbers right now, but the robust pipe what you have in terms of filings and approvals sits there. And we think it will help grow in the business as well.
Was looking at the numbers on a quarter-on-quarter basis, given that you have launched product in the U.S., we haven't seen as much growth in the U.S. market. So -- and your comment is there was not too much price erosion. Shouldn't we have seen more growth in the U.S. given we have launched a couple of products -- good products in the last 2 or 3 quarters. So I'm not looking at so much on a year-on-year basis, but on a quarter-on-quarter basis.
So some of the products for sure, because of competition, we couldn't get to those volumes what we estimated, especially the oncology products like pemetrexed and bortezomib. This didn't contribute because of too many players. And I think that's why we could show growth in that. But the other product that we launch is still has given some volumes, but these are not larger products. So I would say I think the number of product launches happen also considerably lower when you look at an annual basis. So if you look at last year, we have launched 32 products on an annual basis. So next quarter, we'll have a few more product launches coming up.
So you should grow on the existing base that we have in the U.S. $45 million base that we have in the U.S. Would that assumption be correct?
That's correct, yes.
Okay. And my second question is on the ROW market. You seem to have gone back to the levels that we were doing last year. So is it fair to assume that this is a sustainable number and there is no one-off in this. And as we get additional vendors for syringes, et cetera, again, there should be growth on the ROW business from this base in the second half?
So the issue that we're facing with ROW and Indian business is because of the disruptions, most of it we have airlifted last few quarters, and that is putting pressure on our margins and also the ability to compete. So unless that stabilizes and we evaluate the market, it's difficult to comment. But at least once the cost settles down, I think we'll have a better opportunity to grow in that business.
But there is no one-off in the current base. Is that assumption right?
No, there's no one-off, no.
The next question is from the line of Dheeresh from White Oak Capital.
What is the profit share number for the quarter?
Profit share 7%.
Okay. Share of new launches in the quarter from new launches.
About 3%.
India sales, I think last quarter, maybe I don't remember correctly, but I was under ingestion that you were taking for INR 100 crore run rate in India business. So it is slightly lower, any particular reason.
So India business, I think a few factors like I said, the import costs have not helped us. So the margins are pretty low. So we're not able to compete the domestic market. It's a combination of the dollar going up, so adding up to increased cost for us and also the importing costs have gone up. That's one reason. The other is the insulin land, which gives us the -- which contributes a larger than for domestic business that got started off in the middle of this quarter. So this quarter, we -- normal run rate is around INR 25 crores to INR 30 crores a quarter, but I think we have built on level 1 because it started this year. It's the second half of this quarter.
Okay. And the U.S. sales also like given the exclusivity we have on zinc silage and then there was the resumption of supply both for stocker as well as for syringes. I was expecting a slightly better number sequentially based on the commentary from last quarter. So the current U.S. sales, is this asset expectation or you are tracking below your original expectation for this quarter?
So the supply disruption is 100% is not done. Syringes we are good. But still, the shopper portion is still not great. We're getting in franchise. So that's impacted us. Even some bag manufacturing has happened only 50% of the time because of some shortage issues. So still, I think there's an impact of the supplies, which has contributed to this sale.
Given to quantify, sir, like how much sales we would have done if there was no disruption in U.S.
We don't want to quantify that. But I would say the back line was on for like half of the quarter.
Half of the quarter. Okay. Okay. And margin also -- gross margin also, there is some deterioration, it seems, although the mix is not very different in India, you are saying we did not do the lower-margin business. So if you see year-over-year and compare it to the revenue, but it's the U.S. business, the rest of the world business, there seems to be some compression in gross margin. So is that 3 to 2 competitive question?
From that, margin level I think U.S., we are pretty much stable compared to last year. So first quarter a little exception, I would say.
Now I'm comparing September '21 with September '22 quarter, and I'm seeing the revenue mix in various geographies as well as the gross margin that we reported. So I'm seeing some compression in gross margin by about 20 bps -- is that because of U.S. pricing pressure because if you see absolute revenue in terms of what we did like INR 750 crores in regulatory market, INR 230 crores in rest of the world, have you seen that like year-over-year, there is still some compression. So is it because of lower profit share you've had this year this quarter or to do with some markets having more competitive pricing pressure?
Actually, if you look at Q2 FY '22 to Q2 FY '23, the U.S. market margin actually has gone up, contribution margin, 57% to 58%. Q1 FY '23 to Q2 FY '23 it has gone down by 1%. So basically, it's flat for -- it's almost like similar kind of that market. I think where we lost margin update on Canada, has gone down where that's gone down from a year, I think, almost 88%. We are having a larger margin in Canada that has gone down to 65%.
Typically what percentage of revenues.
For the quarter is about INR 17 crores, so about 2%.
So then it is not that big. Okay. Any other region you want to call out in terms of margin contribution margin completion.
Sir, rest of the core markets, it's that better or flat. So but rest of the world market has gone down in terms of margin. If you look at it from last year to this year, it has gone down from 35% to 20%. And that's mostly because of the import costs and why we are musters importing in the real lift because of the subsidies. And we're not about to pass on this... Yes.
Why are we not able to pass it on because others also would be facing single. So the industry in aggregate is absorbing this in the rest of the world in Indian market?
Most of it is like a plan, so what we have in the rest world unlike U.S. where it's a profit share. And so is that actually 1/3 the contribution margin also will be the freight cost comes below the contribution margins at ROW market. So it comes under the EBITDA. So that also has impacted our margin as a company.
And so Dheeresh, just to add to what Mr. Sadu was talking about is that this also includes in the gross contribution is largely 50%, 52% similarly in earlier quarters. Q1 was an aberration. But this time, we have also -- based on the discussion we were having with several customers on our drug substance project. So we have taken a onetime inventory write-off of about INR 7 crore, crores in a biologic CDL facility. This is of the feedback we got and what would be required going for the different contracts we are working on. So this, I think, is about 0.7%, 0.8% and it's a one-off in nature. This would impact your gross margin.
Below that in EBITDA margin, the onetime so what we are explaining is, of course, M&A cost is about INR 4 crores this quarter. And we have built up the employees also for the [indiscernible] is also like - yes, Pash and Shamirpet, both these, employees, we have added about 500 headcounts. So this is also impacting the margin. But once the revenue starts coming in the biosimilar submitted facility in that would negate.
We'll take the next question from the line of Sameer Baisiwala from Morgan Stanley.
Sir, just a couple of points I wanted you to check from our discussion in the previous Q1 con call. If my memory is right, if my notes are right, then you had mentioned that for the balance 9 months that you would grow 20% on a 18% to 20% on the top line. This quarter, you are more or less flat, up 3%. So I just wanted to check on that. And second, I think you had guided on the margins as well that you would maintain Q1 margin, operating margin was 31.5%, and you have come this quarter 28.5%, down 300 basis points. So if you can just clarify on these 2 points.
Yes. So one is on the estimated revenues, what you thought for the large oncology did happen because of the competition. That's one. Second, as I mentioned, the previous question, some disruption of a couple of our manufacturing lines because of the supply issues. So that will help grow the business. From a margin perspective, like Mr. Ravi said, there are like one-off items, which has impacted the margin, about close to 1% on a write-off of onetime and also the M&A cost. So that's all about 1.5% to 1.8% has gone from there. If you add that, it will be close to 3.5% or something.
Sure, I mean, the numbers you don't total up because on the sales pace of INR 1,000 crores to miss 20% growth is like in INR 200 crores, -- that's a big news. So I'm just wondering what happened within 3 months? And what's the outlook for the second half, both on the sales as well as on the margins.
So we don't give our guidance because we still -- the market is still volatile. And now there's -- from a member perspective, I would say, one side, the talent start at the beginning of the quarter at late part of the quarter. And disruption in bag manufacturing as well as some delay in Clio installations did help us in terms of capacities. And of course, the oncology product, the big products, we estimated a larger trend coming from those 2 products. Heaver $1 billion products, but that didn't happen. I mean these are the factors which have impacted the numbers.
So, Efficient, I don't want numbers, but how do we model second half going into fiscal '24. If you can just help that just qualitatively, how do you see business panning out.
This is the operator. Sir, we are not able to hear the audio.
Yes, sorry. So one other aspect, what you forgot is the happen stops still, we said, later part of the last quarter. So that also has impacted. So represent start year and that's almost INR 45 crores a quarter sales for us. So that's only we're expecting in November to come. So that's one another area where [indiscernible] revenue. But moving forward, the -- while we are focusing on growth and filing products and launching products. Being the market is so volatile and the supplies are not yet 100% in line with our plan.
It's very difficult to estimate the near-term growth and difficult to comment on future growth or business guidance for short tenure. But we are assessing the situation. And once we have better visibility approaching we'll update you soon. And -- but we are doing everything in terms of growing the business, the current existing business and also working on the growth levers while working on current portfolio, we're also discussing on increasing the CDMO side of the business, now that we have direct capacities in new capacities in the line, I think there is also increase in cost in the manpower because we have added 500 people to get the lines on track last quarter.
So we're aggressively pursuing the CMO business on those lines. So this should add up to some revenues coming in the next few quarters. I think that once we have some visibility, we'll give you a growth. But as of now, because of the well validated business and not clear indication of how that's going to happen. We don't want to give an indication for the near-term growth.
The next question is from the line of Ritesh Rathod from Nippon India.
Yes, sir, can you give you an outlook on the margin? I think last quarter, you spoke about some 30%, 32% margin, excluding other income. So is that impact? Or even you explained partly this quarter margin has been impacted due to one-offs or even that needs to be downgraded.
So if you look at the quarter, the other income is around 28.5% EBITDA. And if you add the onetime expenses of whether the write-off of the year which has come down to 3.5% plus 21%. So like acquired shifted around that range, at least on a quarter-on-quarter basis. But if there's any change, we'll let you know.
And sir, on the supply disruptions, particularly for stockers, as so visibility improved and a you're confident of things coming back by November, December or that has deteriorated further and uncertainty still.
From sore, the 2 things we are doing, right, not just open other aspects that also contributed to the cost, while we have added action suppliers, works and stockers, TD and picture perspective, several products we have worked on in the last 2 quarters and also the artist company. In terms of fine, which is a key product where we're not able to supply, we have fans alternate suppliers.
So we're going to file that this quarter. We're expecting an approval of 3 months. In the meanwhile, we are getting some not 100% better demand, but we are getting in changes. So some part will get in November. Probably next 1 quarter, I would say, the first quarter of next year, it should normalize in a combination of what we have approved to the stock today and also the new stopper that we are qualified.
And last one on this fire badges and by edition, can you give some color of what you're planning to do, what -- in terms of -- is there some visibility in terms of order backlog or order book, which is why you have done this thing? Or it's more of a medium-term investment?
So to look at the capacity in for the liquid wires, actually, we are running almost like 85%, 90% of capacity. And we are not able to take up new orders. And because of the deal insulation, it kind of pushed out. So we have one in its got installed last quarter. And their give out supplying, for this we have our suspension products. So currently, we are taking a lot of R&D basis on that because we have complex product filings as to do in next 4 months. So once those fire badges have done, then we'll use the commercial production. So that will bring the revenue from the commercial angle. So we added manpower for that line.
And also, we have articles. Again, we are running at 80% capacity for the Clio. They're contracts where we are audible to cater to, which are larger ones, especially on the CMO side. So we can actually get those kind of contracts. So these 3 layers will come on track in next quarter. So this is more a near-term commercial opportunity we have.
And we are also investing CapEx on bad manufacturing because current tax, again, we are not able to meet the demand, what we have in the U.S. So the optional CapEx has also been planned for that as well. From Visa oncology, we have added one more line. So that's coming on track. So that will, again, give -- we can never start to get more CMOs from donors as well. So these are more growth drivers for us in the new future.
The next question is from the line of Prakash Agarwal from Axis Capital.
The first question is largely relating more of a clarification. In your presentation, you have talked about things are getting normalized, especially for ROW and qualification of alternate supplies is in process. So -- and so it's going to take 1 to more quarters to normalize? Or we are done with it. And from next quarter, we'll start seeing the growth on ROW.
So Agarwal, now actually has come back to normal normalcy in terms of at least a finished products. Now it's more to do with the cost, costs we have been playing on that and how do you compete in the market. So it should come back now. In terms of supplies, we don't have an issue. We also have alternate suppliers. For that, and we have already started supplying the pallet.
So these are qualified alternate suppliers, which is other than BD, what should we understand like that? Or because in the last call, you said it would take a couple of quarters to get qualifications. So have we done that qualification yet?
Yes, it's already done. And they already initiated supplies with one of the plans.
And for the U.S. in the past, you said that because ROW having same qualification, you are using ROW supplies to cater to U.S. So now with ROW resolving and U.S., you don't think there is any shortage as such. It's more related to pricing competition as well as portfolio less number of products launch. Nothing related to shortage apart from the stopper issues. Is that the correct understanding?
Yes, to arise for Hebridean, we have 3 or 4 other products where we have tubing and filter tube, where we have filed alternative sources for those products. There are also issues with bags where we have a problem with the [indiscernible]. It got resolved in the recent past. So last 1 month, we won't have that issue for. I think moving forward, most of the issues will be covered, except the [indiscernible] that will happen.
And for that commentary is that earlier in November, but you are still saying it is coming in bad years. So maybe by Q1 of next calendar year, it should get normalized. Is that the standing correct?
Yes. So even now the first tranche is coming in November, but not -- it's only a partial quantity. We're qualifying the second stopper and filing this quarter, and that might take an approval for 2 or 3 months. So if that approval comes earlier, then probably next quarter, that can resolve 100%. Otherwise, one more quarter, we have to stop or with a partial supply.
And lastly, on the U.S. TL side, is there any commentary last time, I think there was a product limited inspection. And for the 2 large facilities, we are due for inspection, is there a commentary or we have a tablet or a date where we would have the inspections.
So we already had one inspection read in my commentary. So we had completed for one side for the product PAI, and we got one observation for which we have responded. The other side, we don't have the information on when they're going to visit. So mostly, it's unannounced inspections, so we don't know when.
But that product, a move that we have done with the facility inspection also? Or is that check boxed? Or it's yet to -- I mean, it's related to product only and then the facility inspection is still doing for the first one. So normally, for a PR, it's a combination of both GMP and all that, they don't come back again, but depends on -- depends on the inspector as well.
But normally, PAI whether it's a combination of PAI or come back again, but depends on the inspector as well, but normally, I would like to PAI inspection they go through the site in Intel.
The next question is from the line of Kartik Mehta from Klay Capital.
I have a bookkeeping question. Can you guys tell us what is the expense activities improve to the CDMO business on the OpEx side, it would include the staff, R&D, that, et cetera. Very specifically, if you could just tell us for this quarter only for the nonrevenue-generating CD business.
Yes. At EBITDA level at INR 15 crores on the quarter without including the depreciation.
If you would add the depreciation also, Ravi, is it possible to quantify that?
Depreciation is another INR 6 crores, INR 7 crores for the quarter.
And you've spoken somewhere in the call and are in the presentation also that you are closer to commerce, you are closer to commercial negotiations. So I'm assuming everything has been charged to P&L as of now, including the write-offs, which you earlier spoke about. So I'm not asking for a date or for the contract tenure, et cetera. Is it fair to assume that in calendar year -- in calendar year '23 your revenue stream may start, assuming that these expenses obviously will deliver even in fact, increase as you go -- so here to the contractual agreement stage.
Yes, the business will start for sure. I don't know how much it can cover it at cost? It's not 100%, it should covered…
Yes. No, I'm not asking for a revenue number. So know, you know to assume that about INR 60 crores a year at this run rate will be the cost, which you will incur -- I mean, or are there any more investments, particularly above the EBITDA level, which one can expect in Q3, Q4 or even in the next 3, 4 quarters, just operationally in terms of expense, EBITDA, et cetera, if that is something that you can just talk about.
Now on the overhead side, I think we are all done in terms of people or [indiscernible]. So it will not go up when the start. Of course, the direct material linked to that will be in line with the revenue also.
The next question is from the line of [ Rakesh Naidu ] from Motilal Oswal Asset Management.
I just wanted to have your comments on yesterday's moving downgrade. I mean how should we think about this entire scenario and given the lineup of assets, which for you intending to offload. And how does that impact state health care generally -- and are there any thoughts on Indian business as well...
Yes. So to start it with the issues which you mentioned is at for some international level. Our promoter is Fosun Pharma, which is again a listed company. There is no balance sheet linkage or any dependency with them today. We have business relationship with Fosun Pharma, like, for example, we sell to their subsidiary in U.S. and other areas. Last EBITDA is about INR 175 crores to 180 crores. The half year, we did about INR 100 crores. And but also from some of the subsidiaries in China, which is about again at INR 100 crores. So I think other than that, there is no impact in business per se. And of course, the concern which you raised and came out is at shareholder level. So difficult to comment from our standpoint.
That's helpful. In Q1 commentary here, one of the reasons that you have highlighted for lower U.S. performance is shortages and then inventory in account what you had alluded to -- now I just looking to see how the numbers stack up. There was a preexisting inventory. And again, there is a decent buildup of in within the system. So how should I actually look into the underground dynamic? I mean what exactly is playing out? I mean is it the competitive intensity or lower optic of products for demand, what exactly is happening in the U.S. market?
Rest assures the competition is higher compared to earlier. But if you look at our older products are still intact in terms of margins and if you look at the growth, it's coming from price also and also new products. There is a degrowth of about 7% to 8% by volumes. And this volume is a mix of what we're not able to supply.
And also for the demand situation for some of the products, which has not gone back. Some of our key products have still not gone back to the earlier level. It should start from this quarter, the next quarter. Like I said, we are having more contracts last year and the pipeline build up purse, that's getting used up. So we sustain from the future. So in that sense, I think its volume degrowth, which has impacted a bit, which should come back in the next few quarters.
On last call, you seem more optimistic and you are related to incremental contracts with some existing buyers and also seasonality. But then now you seem to be deciding from giving guidance for the second half. I mean I mean my understanding was that you guys had alluded to a more flattish kind of FY '23. I mean, is it fair to expect that, that will be delivered or it will be tough to take a call at this point in time.
It's tough to tell right now because we don't want to comment on it. Like I said, while we are estimating the supplies to come on track, there are certain delays happening because of the volatility. And as well, most of the shipments we are now making it are to reduce our costs. So that will be compromise a bit on our sales and Indian sales, at least to keep our margins intact and profitability higher. So we'll keep you posted in the next few months once we get a clear visibility and the volatile legalities.
Okay. Sir, one final question, if I may. You had guided for INR 350 crores of CapEx per annum. We seem to be a bit slow on that part. I mean is there any reason or what exactly is happening with regards to building of new facilities?
It's our timing. I think it is all in track because these are all crores indicated earlier, is all project price already approved project, what is going on. It is only a timing of spend, but year-end, we'll end up that number. For the next year, in fact, we are looking at some more additional capacity which Mr. Mitra explaining in terms of certain delivered formats.
The next question is from the line of Saion Mukherjee from Nomura.
Sir, can you share -- you mentioned profit share of 7%. What is the number for the first half and also for FY '22?
So in 6 months, FY '22 is 8% and even FY '23 is the same range... 8%.
Okay. And sir, the service income has been very high last year, FY '22. Has it come off in the first half compared to what it was in the previous year.
It's almost the same, right? I mean 7% last year. In fact, this year, it's 8%. -- milestone revenue. 8% milestone revenue.
Sir, the next question I have -- the next question I have is on China. How many products you are buying, how many more you are to mentioned, I think you will be stepping up your filings. If you can give a sense of how large these products are any unique opportunities in terms of being present in the first phase, et cetera, any color? And how should we think about ramping up of this revenue in China over the next 2, 3 years?
So 8 products aside, 2 are expected approval for sale by end of this year, one, I think, this quarter and next quarter and next year. This is a filing plan of 6 products again in FY '24.
And sir, in terms of size, opportunity, competition. How should we think about to get these approvals, how the China revenues will ramp up?
We take that offline some of it are done, we'll take that offline. Some we give that information.
Okay. Okay. Sure. And sir, one question, if I can ask on ROW. So we have seen a very good ramp-up over the last 2 years. In terms of product registration, it hasn't gone up that much, but the revenues went up a lot in ROW. It was a bit volatile and you mentioned some of the reasons. Now I understand once things stabilize, it will probably take some time. How should we think about growth in ROW excluding China, let's say, over the next 2, 3 years, the run rate has been exceptionally high for us.
Sir Mukherjee, the percentage give the wrong indication because the base was very low. The person looks like now the base is high. And from the registration perspective, historically, we been compromising on -- we don't leverage the state is what we have because of capacity constraints or what we are doing today.
And also the GCC market we never explored earlier, most of the focus was on LatAm and APAC regions. So that region opened up because of the margin profile, there is better than other markets where some competition. And with our quality systems, we are not able to compete in some of these markets, but GC has a better margin profile. So that's contributing almost 26%, 27% of the revenue, just not there before in terms of ROW business.
So we -- with the past is coming on track now with additional lines coming on, both to continue to focus on that in that region. While we can't comment on the growth, but a lot of focus is happening in terms of registrations also. We're entering Mexico, we're entering South Africa as well, which are not there earlier. At some of the even CIS countries we are entering now. So these are the new territories where we're trying to enter and increase the market.
The next question is from the line of Tarun Shetty from Haitong Securities.
Just 2 clarifications from my side. Could you actually give the number of launches for this year and next year in the U.S. market?
The first 6 months, we have launched about 20 days in the U.S. And next 2 quarters, we have about 25 launches planned.
So for the next 2 years, I mean, FY '21, is there any visibility F5?
So this quarter, we have about 9 launches happening. 9 months is happening, and next quarter is about 16 launches. I was... Looking for FY '24 guidance? FY '24, normally, it's between -- I don't have it on hand, but normally, it's between 25 to 30 launches.
Okay. So the next one will be on the inventory and payable levels high. So do you see them remaining at current mines? Or should we build a more normalized or it might go downward trend in the coming quarter?
We have restarted if you see from March level and should be on this level going forward. This is a high inventory we explained earlier also on the kind of -- and because of the volatile situation, we would like to have inventory in hand.
And then last one clarification was on the ROW. You mentioned the RB margins at 25% for this quarter, which was around 35% last year. Am I ring it right? Or was it different?
35% gross margin the previous quarter compared to 25% of the recent quarter, yes.
Okay. This is gross margin. That's the formation.
The next question is from the line of [ Anand Venugopal ] from BMSPL.
Yes. So I just would like to know if you could describe the state of the U.S. active at the moment. Is there a risk of prolonged price erosion due to pricing competition, just like we have been seeing in generic or over industry over the past few years?
The competition is Intel for sure. So all the new launches, we're kind of cutting down on the forecast, especially with last few quarters. But otherwise, if you see from our pipeline perspective, our margins are intact. I mean, as been saying gross margin is still at around 50%, 52%.
Historically, that's been the case. But whatever new launches are happening earlier, it used to be higher in the first year. It was like 65%, 70% and even some products, it used to be like 70%, 80%. I think -- and then it used to settle down around 40%, 50% after 3 years. So that scenario we're not seeing from last 3 quarters. It is going down on the first year itself because of the competition. But we got to see with FDA coming back and auditing a lot of sites. And now we have to see whether the competition will stay intact and how long can they sustain with this dicing offering in the market because this is a cycle we're in that space where we have seen that a few years ago. Where a lot of companies will launch until the capacity gets filled up and then we start exiting the market. So we have to give that time.
The next question is from the line of Prashant Nair from AMBIT Capital.
I just have one follow-up question on growth going forward. So if you size the lower-term volatility, could you give us some sense of what this is still structurally a 20%-plus growth business that we have seen in the past? Or do you think given where we are in terms of base, it could be slightly lower than that. And some sense on that would be helpful ignoring the nearline.
Yes. From growth levers possesses a lot of opportunities still there, right? I mean whether if you look at long-acting injectable space, the ophthalmic suspension space, the auto-injector space, where we have invested recently. We have invested into investing the bags now in a big way. So -- and also from a geography perspective, just entering into some of these markets have never grown earlier. So the opportunities are there. It's just that I would say the consolidation phase we were going through.
We also need to streamline the supply thinking from a long-term perspective, having several alternative sources for several aspects of products achieved for the key products. So in last 1 year, we invested almost 20, 25 products working around adding alternate suppliers in various areas. So that also has added up to the cost. But these are all like investments we are making for the future growth and more stability for the business.
So once in 5, 6 years, we need that year where we had to consolidate the business. I think we're using that now. But from an opportunity perspective, there are several areas we can grow. We have seen a lot of positive feedback on the biosimilar CDMO space. A lot of customers are approaching us. The relationships that we have with customers are intact, the large customers of the portfolio is still growing with their biggest customers. Instead of the smaller players coming and creating some noise in terms of operating products that achieve price, but still we have our own place in terms of the growth.
So we are pretty confident on the growth in the future because the opportunities are there. It says that we had to overcome the current tide in terms of supplies and operational issues. Because while we're talking about supply disruption directly linked to the components and all there are to see ever expanding the lines are coming -- not coming on track after planned because people have the technicians can travel. So everything happened when we are running the manufacturing setup. So that said, once it settles, I think we have a good growth story to move forward.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Sumanta Bajpayee for closing comments.
Thank you. Thank you, everyone, for joining us today. We appreciate your participation during the call. If any questions till then in unanswered, please reach out to us to me and our Investor Relations team. And thanks, again. We would like to reconnect again in our next earnings man. Thank you. Good night.
Thank you. Ladies and gentlemen, on behalf of Gland Pharma Limited, that concludes this conference call. Thank you for joining us and you may now disconnect your lines.